Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 79 414K
2: EX-3.1 Articles of Incorporation/Organization or By-Laws 10 35K
3: EX-3.2 Articles of Incorporation/Organization or By-Laws 15 57K
4: EX-10.3 Material Contract 32 95K
5: EX-10.4 Material Contract 12 40K
6: EX-10.6 Material Contract 44± 173K
7: EX-21.1 Subsidiaries of the Registrant 1 4K
8: EX-23.1 Consent of Experts or Counsel 1 7K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[Download Table]
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 000-30141
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LIVEPERSON, INC.
(Exact name of registrant as specified in its charter)
[Download Table]
DELAWARE 13-3861628
(State of incorporation) (IRS Employer Identification No.)
330 WEST 34TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10001
(Address of principal executive (Zip Code)
offices)
(212) 918-2100
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR
VALUE $0.001 PER SHARE
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting common stock held by non-affiliates
of the registrant as of March 15, 2001 was $23,739,925 (based on the last
reported sale price on the Nasdaq National Market on that date). The registrant
does not have any non-voting common stock outstanding. On March 15, 2001,
33,969,381 shares of the registrant's common stock were outstanding.
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LIVEPERSON, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
[Download Table]
PAGE
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PART I
ITEM 1. Business.................................................... 2
ITEM 2. Properties.................................................. 12
ITEM 3. Legal Proceedings........................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 13
ITEM 6. Selected Consolidated Financial Data........................ 14
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 40
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 40
ITEM 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 64
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 65
ITEM 11. Executive Compensation...................................... 67
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 72
ITEM 13. Certain Relationships and Related Transactions.............. 74
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 75
STATEMENTS IN THIS REPORT REGARDING LIVEPERSON, INC. ("LIVEPERSON") THAT ARE
NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT LIVEPERSON AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE SUCH STATEMENTS TO DIFFER MATERIALLY FROM ACTUAL
FUTURE EVENTS OR RESULTS. ANY SUCH FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT
TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. IT IS ROUTINE FOR OUR INTERNAL PROJECTIONS AND EXPECTATIONS TO CHANGE AS
THE YEAR OR EACH QUARTER IN THE YEAR PROGRESS, AND THEREFORE IT SHOULD BE
CLEARLY UNDERSTOOD THAT THE INTERNAL PROJECTIONS AND BELIEFS UPON WHICH WE BASE
OUR EXPECTATIONS MAY CHANGE PRIOR TO THE END OF EACH QUARTER OR THE YEAR.
ALTHOUGH THESE EXPECTATIONS MAY CHANGE, WE ARE UNDER NO OBLIGATION TO INFORM YOU
IF THEY DO. OUR COMPANY POLICY IS GENERALLY TO PROVIDE OUR EXPECTATIONS ONLY
ONCE PER QUARTER, AND NOT TO UPDATE THAT INFORMATION UNTIL THE NEXT QUARTER.
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
PROJECTIONS OR FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS REPORT, PARTICULARLY IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS."
PART I
ITEM 1. BUSINESS
OVERVIEW
LivePerson is a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We change the way
Web site owners communicate with Internet users by enabling live text-based
chat. Historically, Internet users have had limited ways to communicate with
online businesses to inquire about matters such as product features, transaction
security and shipping details. The LivePerson services enable our clients to
communicate with Internet users in a variety of ways, including principally via
text-based chat. They can respond to these and other Internet user inquiries in
real time via text-based chat, and can thereby enhance online shopping
experiences.
Our services are comprised of a Customer Interaction Suite, including
LivePerson Chat (our text-based chat service), LivePerson Knowledge (our
intelligent frequently asked question service), and our telephone call-back
services, offering our clients additional opportunities to interact with
Internet users. In October 2000, we acquired HumanClick Ltd., an Israeli-based
provider of real-time, on-line customer service applications to small- and
mid-sized businesses. We currently offer the HumanClick services (known as Pro,
Express and Free) as separately-branded, real-time, text-based chat services.
We are an application service provider, and we offer our proprietary
real-time interaction technologies as outsourced services. Our technologies
require limited or no software or hardware installation by our clients or
Internet users. Upgrades to our services are automatic because they are
installed on our servers, without requiring action by either our clients or
Internet users. We also offer our clients the ability to add capacity whenever
requested.
Based on feedback received from our clients, we believe that our services
offer our clients the opportunity to increase sales by answering Internet user
questions and solving Internet user problems at critical points in the buying
process. They also enable our clients to reduce customer service costs by
allowing them to enhance operating efficiency and to improve Internet user
response times. Further,
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information captured in transcripts of live text-based interactions can be used
by our clients to increase their responsiveness to Internet user needs and
preferences, thereby improving Internet user satisfaction, loyalty and
retention.
We currently have more than 800 clients, including numerous online
retailers, online service providers and traditional offline businesses with a
Web presence. Our largest clients in 2000 included American Power Conversion
(APC), Bank of Montreal, Electronic Arts, iQVC, Last Minute Network, National
Discount Brokers and Neiman Marcus.
INDUSTRY BACKGROUND
The Internet is evolving from primarily a static information source to a
widely accepted medium for commerce. Approximately 850,000 businesses offered
goods, services and information over the Web, according to an eMarketer report
of December 1999. Competition among online businesses is intense, with new
companies launching commercial Web sites every day. eMarketer estimates that the
number of actively maintained business Web sites will grow to 2.3 million
worldwide by the year 2002.
To compete effectively in this environment, online businesses are
increasingly striving to provide high quality service to attract and retain
customers. This increased focus is in turn leading to heightened expectations
for online service by Internet users. Whether to ask questions about product
features or transaction security, or to get help with completing an online
application, Internet users today expect effective, timely answers. Companies
that do not provide this level of service risk losing customers to competitors.
Companies are also increasingly focused on gathering information to improve
responsiveness and increase the rate of conversion from Web visitor to buyer.
Online shoppers have many purchasing options, with easy access to competitive
pricing, feature and distribution information. According to a Forrester Research
report of June 1999, 70% of all online merchants experience sales conversion
rates of less than 2%. In this environment, online businesses that collect
substantial information about Internet users are better able to serve them
effectively. Internet user feedback provides Web site owners with input on
product and service offerings, preferences and Web site usability.
THE LIVEPERSON SOLUTION
LivePerson is a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We are an
application service provider offering this technology as an outsourced service
to companies of all sizes. Our technology enables our clients to interact with
customers in real-time at the user's request through live text-based chat or to
provide answers to routine customer inquiries using a searchable knowledge base
of frequently asked questions. This improves Web site communication and enhances
the online shopping experience.
To implement our text-based chat and our frequently asked questions
services, our clients simply place a LivePerson-branded or custom-created icon
on one or more pages of their Web sites and give their operators access to our
service via the Internet. When an Internet user browsing a client's Web site
desires assistance, the user simply clicks on the icon. This causes a pop-up
dialogue window to appear on the user's screen. The Internet user and our
client's operator then engage in a real-time online conversation in this
dialogue window. The operator may incorporate graphics and links to Web pages
into the dialogue window. Our service enables this live conversation by linking
the Internet user and our clients' operators through our proprietary technology,
which resides on our servers.
We create and store conversation transcripts and related data, and we also
enable our clients to generate optional Internet user exit surveys, which our
clients can use to collect additional information about Internet users. Stored
data includes the Internet user's name, browser type, Internet Protocol (IP)
address and responses to exit surveys, the operator's identity and time stamps
for each chat
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transmission. In addition, we provide our clients with tools to analyze the
stored information. These tools include summary reports of the number of chats
in certain periods and the duration of such chats, filters to sort data from
exit surveys, statistical summaries of those data and statistical summaries of
operator performance.
We believe the LivePerson services give our clients the opportunity to:
- MAXIMIZE SALES OPPORTUNITIES. Our clients are able to respond to
Internet user inquiries in real-time. Live interaction with Internet
users creates opportunities to:
- answer questions on demand and resolve Internet user issues as they
occur;
- assist in closing sales that might otherwise have been abandoned
without direct one-to-one real-time interaction; and
- market additional products and services in order to increase average
order sizes.
- STRENGTHEN RELATIONSHIPS WITH INTERNET USERS. Personalized service
generates increased Internet user satisfaction. Our service enables our
clients to build relationships with Internet users and offers our
clients the opportunity to market to Internet users on a one-to-one
basis. Furthermore, transcripts from LivePerson conversations and
optional exit surveys often provide relevant Internet user data and
valuable real-time feedback. Our clients may then use this information
to modify product offerings and marketing efforts, improve Web site
navigation and refine their frequently asked questions listings.
- REDUCE OPERATING COSTS. Our clients' experience has shown that a single
operator can interact with as many as four users simultaneously. As a
result, an operator can provide service to more Internet users, thereby
reducing costs per interaction. In addition, our clients can create
pre-formatted responses to Internet user questions, allowing them to
improve response time and operator efficiency. An operator can simply
choose and, where appropriate, slightly modify a pre-formatted response
to answer many questions.
Because we are an application service provider and provide our clients with
a service rather than an in-house technology solution, we provide our clients
with the following additional benefits:
- LOW SET-UP COSTS AND REASONABLE ONGOING FEES. We charge our clients a
low set-up fee and reasonable ongoing monthly fees.
- EFFECTIVE USE OF INTERNAL RESOURCES. Because the LivePerson services
are outsourced applications, our clients can devote their information
technology resources to other priorities.
- RAPID DEPLOYMENT. We provide the technology needed to facilitate
real-time sales and customer service without customization. Our clients
do not need to install any hardware or software in order to immediately
provide the LivePerson services, other than any hardware or software
they might need to install in order to connect to the Internet
generally. Clients using the HumanClick service simply download software
via the Internet to install the service on their Web site. In addition,
our clients' operators and Internet users can use our services with any
standard Web browser.
- AUTOMATIC UPGRADES. We install all upgrades to the LivePerson services
on our servers. As a result, upgrades are immediately available for use
and require no action by either our clients or Internet users.
- EASE OF EXPANSION. Our clients can add additional operator seats simply
by requesting them, enabling the LivePerson services to meet our
clients' growth needs.
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OUR STRATEGY
Our objective is to enhance our current position as a provider of real-time
sales and customer service technology for companies doing business on the
Internet. The key elements of our strategy include:
STRENGTHENING OUR MARKET POSITION AND GROWING OUR RECURRING REVENUE
BASE. We intend to extend our market position by significantly increasing our
installed client base. We intend to capitalize on our growing base of existing
clients by selling them additional seats and other services as Internet users
are increasingly exposed to the benefits and functionality of live text-based
interaction. Increasing our client base will enable us to continue to strengthen
our recurring revenue stream. We also believe that greater exposure of Internet
users to our services will create additional demand for real-time sales and
customer service solutions. We plan to continue expanding into all areas of
Internet commerce which could benefit from real-time sales and customer service
technology.
INCREASING THE VALUE OF OUR SERVICE TO OUR CLIENTS. We strive to
continuously add new features and functionality to our live interaction
platform. Because we host our services, we can make new features available
immediately to our clients without client or end-user installation of software
or hardware. We currently offer a suite of reporting and administrative tools as
part of our overall suite of services. Over time, we intend to develop richer
tools for appropriate sectors of our client base, while adding further
interactive capabilities. We also intend to develop additional services that
will provide value to our clients. For example, we intend to provide advisory
services to our clients that enable improved reporting capabilities, data
storage and bridges to existing client systems. Our clients may use these
capabilities to increase productivity, manage call center staffing, develop
one-to-one marketing tactics and pinpoint sales opportunities. Through these and
other initiatives, we intend to increase the value of our services to clients
and their reliance on its benefits, which we believe will result in additional
revenue from both new and existing clients over time.
CONTINUING TO BUILD STRONG BRAND RECOGNITION. Our brand name is generally
prominently displayed on the pop-up dialogue window that appears when an
Internet user commences a text-based chat. We believe that high visibility
placement of our brand name will create greater brand awareness and increase
demand for the LivePerson services. In addition, we intend to leverage
increasing awareness of our brand and our reputation as a provider of real-time
sales and customer service technology to become a well-recognized solution for
companies doing business on the Internet. We intend to expand our traditional
and online marketing activities to achieve these goals.
MAINTAINING OUR TECHNOLOGICAL LEADERSHIP POSITION. We focus on the
development of tightly integrated software design and network architecture that
is both reliable and scalable. We continue to devote significant resources to
technological innovation. Specifically, we plan to expand the features and
functionality of our existing services, develop broader applications for our
services and create new products and services that will benefit our expanding
client base. We evaluate emerging technologies and industry standards and
continually update our technology in response to changes in the real-time
customer service industry. We believe that these efforts will allow us to
effectively anticipate changing client and end-user requirements in our rapidly
evolving industry.
EVALUATING STRATEGIC ALLIANCES AND ACQUISITIONS WHERE APPROPRIATE. We
intend to seek opportunities to form strategic alliances with or to acquire
other companies that will enhance our business. In October 2000, we acquired
HumanClick Ltd., an Israeli-based provider of real-time, on-line customer
service applications to small- and mid-sized businesses. We have also entered
into selected strategic alliances with customer service call centers to support
our telephone call-back service and to provide customer service representatives
for our clients, and may enter into additional alliances in the future. We have
no present plans or commitments with respect to any strategic alliances or
acquisitions and we are not currently engaged in any material negotiations with
respect to these opportunities.
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EXPANDING OUR INTERNATIONAL PRESENCE. We have translated the user interface
for the LivePerson services into a variety of languages, presently including
Dutch, French, German, Italian, Portuguese, Spanish and Swedish. We intend to
expand our international presence to better penetrate these markets and are
evaluating strategies to implement international expansion.
THE LIVEPERSON SERVICES
LIVEPERSON CHAT
The LivePerson Chat service appear on our clients' Web sites as a
LivePerson-branded or custom-created icon. An Internet user browsing a client's
Web site who desires assistance simply clicks on the icon, causing the
LivePerson pop-up dialogue window to appear on the user's screen. An operator
prompts the user with an offer of assistance, commencing a real-time text-based
interaction. In many instances, pre-formatted responses are used to respond to
Internet user inquiries.
LivePerson Chat provides the following features and benefits:
- REAL-TIME TEXT-BASED INTERACTION. Real-time text-based interaction is
the communication vehicle between our clients' operators and Internet
users. Text is currently the preferred method of communication because
it requires no special plug-ins or hardware and it can be stored and
analyzed.
- IMAGE/LINK/PAGE PRESENTER. An operator may present photographs, images
or links to other Web pages or sites in the dialogue window in response
to Internet user queries. An operator may also "push" Web pages to an
Internet user's screen.
- SHOPPING CART CONVERTER. The shopping cart converter is a pop-up window
feature that is often used to help prevent shopping cart abandonment.
Typically, after an Internet user has been at a shopping cart for a set
period, a pop-up window will appear offering assistance. This enables
the Internet user to instantly ask a question before completing or
potentially abandoning a transaction.
- EXIT SURVEY. A customizable exit survey is presented to the Internet
user after each conversation. The survey can be modified in real time
and is used by our clients primarily for gathering Internet user
feedback, creating Internet user profiles and quality control.
- EMAIL TARGETER. Based on information collected in exit surveys, the
email targeter allows clients to target sales and marketing campaigns to
selected Internet user groups.
- SKILL-BASED ROUTING. Internet users can be routed to specific operators
based on the operator's particular knowledge of specific products or
services. For example, many of our clients have specialized operator
groups focusing separately on sales or customer service to whom they
selectively route inquiries. This routing complements and partially
automates the alternative operator transfer capability.
HUMANCLICK SERVICES
The HumanClick Chat service offers real-time, text-based interaction as a
communication vehicle between our clients' operators and Internet users, at a
lower per-seat cost to our clients than our LivePerson Chat service.
The HumanClick service provides the following features and benefits:
- REAL-TIME MONITORING. Notifies our clients' operators via an audible
alert when an Internet user visits the clients' Web site.
- PROACTIVE ENGAGEMENT. Allows our clients' operators to send a message
to an Internet user visiting the clients' Web site, inviting the user to
initiate a chat.
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- REPEAT VISITOR IDENTIFICATION. Informs our clients' operators when an
Internet user initiating a chat has a history of prior chats with that
clients' operators. Our clients' operators can immediately access prior
chats.
- CHAT WINDOW AND CHAT BUTTON CUSTOMIZATION. Allows our clients to
implement custom-designed pop-up dialog windows and chat icons.
- AUTO-PROVISIONING. Allows clients to create and maintain their
HumanClick accounts via a Web-based interface.
- EMAIL SIGNATURE. Enables clients' operators to add a HumanClick icon to
outbound email messages, enabling recipients of those email messages to
initiate a chat by clicking on the icon.
LIVEPERSON KNOWLEDGE
LivePerson Knowledge is an intelligent frequently asked questions service
that seamlessly integrates with LivePerson Chat to enhance online sales and
service efforts by offering Internet users a self-help option, which is
especially useful for those customers with routine inquiries. LivePerson
Knowledge allows our clients to provide their customers with access to a
searchable knowledge base of frequently asked questions 24-hours per
day/seven-days per week, whether or not their customer service operators are
available. The searchable knowledge base features automatic prioritization of
answers based on frequency of selection and effectiveness in answering
customers' questions. Frequently asked questions can be searched by either
entering a keyword or by clicking on a drop-down navigation bar to search by
topic.
- INTEGRATED KNOWLEDGE BASE. The LivePerson knowledge base, where
pre-formatted responses are created and stored, integrates seamlessly
with LivePerson Chat. As a result, pre-formatted responses need only be
created or edited once for use with either service.
- MOST RECENT QUESTION. When customers proceed to a LivePerson Chat after
using LivePerson Knowledge, operators see the most recent question asked
by the customer allowing the operator to quickly understand the nature
of the customer's inquiry.
- REPORTING. Reporting tools allow our clients to monitor customer
request volume and the top 100 search phrases used.
CLIENTS
Our client base includes dedicated Internet companies, Fortune 1000
companies and other companies with established commercial Web sites. Our service
benefits companies of all sizes doing business on the Internet.
The following is a representative list of our clients among those generating
at least $2,000 in revenue during 2000:
APC
Bank of Montreal
Cable & Wireless
CMC Group Plc
CyBerCorp
Drake Software Solutions
EarthLink
Electronic Arts
Financial Times
Forextrading.com
Harris Interactive
Digital Insurance
HealthAxis.com
IMX Exchange
Intuit
iQVC
JB Oxford & Company
Kinko's
Laidlaw Global Services
Last Minute Network
National Discount Brokers
Neiman Marcus
Playboy.com
PlayersOnly.com
Priceline.com
Schneider National
ScreamingMedia
ShopAtHome
Vignette
Warrior Insurance Group
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SALES, CLIENT SUPPORT AND MARKETING
SALES. We sell the LivePerson services primarily via telephone as a monthly
fee service. Due to the relatively low start-up costs of the LivePerson
services, our experience has shown that purchase approval comes from customer
service, sales or marketing managers, and requires little or no involvement on
the part of a client's information technology staff. We sell the HumanClick
text-based chat service primarily through customer-direct Web downloads, as a
monthly fee service.
We sell the LivePerson services primarily through a direct sales
organization and target companies seeking to improve customer relations and
increase Internet commerce activity. Additionally, potential clients have
contacted us as a result of our participation in trade shows, press releases,
news articles, online and offline advertising campaigns or visits to our Web
site. We demonstrate the LivePerson services online and, for larger accounts, we
provide in-person service demonstrations.
We also have begun to enter into contractual arrangements that complement
our direct sales force. These are primarily with Web hosting and call center
service companies, and are in the form of value-added reseller or referral
agreements pursuant to which we are paid a commission based on revenue generated
for these service companies from clients referred by LivePerson. Aggregate
commissions generated under such agreements to date, as a percentage of total
LivePerson services revenue, have not been material, although we expect such
commissions to increase in both absolute terms and as a percentage of total
LivePerson services revenue over time.
CLIENT SUPPORT. Our client services group assists the client in launching
the LivePerson services, and manages our ongoing relationship with the client.
Each client has access to help desk services and a client services manager for
assistance with service questions.
The following steps are required to launch a new LivePerson client:
- ACCOUNT SET-UP. We create operator names and passwords for our client.
- SITE SET-UP. Our client places our HTML link on their Web site.
- TRAINING. We provide telephone-based training of operators and
administrators.
Set-up and training can generally be accomplished within the same day. We
also maintain a 24-hour per day/seven-day per week help desk to assist clients
with any technical concerns or issues.
Clients who purchase our HumanClick text-based chat service download
software via the Internet and install it on their servers. These clients have
access to client services representatives via the Internet, using the HumanClick
Chat service.
MARKETING. Our marketing strategy is focused on building brand awareness of
LivePerson as a provider of real-time sales and customer service technology for
companies doing business on the Internet. Our marketing targets dedicated
Internet companies, Fortune 1000 companies and other companies with established
commercial Web sites. Marketing efforts for the HumanClick service consist
primarily of direct communication efforts to potential and existing users
through interactive email and real-time chat, as well as channel support through
newsletters and trade publications.
Our marketing strategy also includes aggressive public relations efforts.
These initiatives include interviews with media and industry analysts which
often result in published articles and studies. They also include speaking
engagements and byline articles featuring our executives.
COMPETITION
The market for real-time sales and customer service technology is new and
intensely competitive. There are no substantial barriers to entry in this
market, other than the ability to design and build scalable software and, with
respect to outsourced solution providers, the ability to design and build
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scalable network architecture. Established or new entities may enter this market
in the near future, including those that provide real-time interaction online,
with or without the user's request.
We compete directly with companies focused on technology that facilitates
real-time sales and customer service interaction. Our competitors include
customer service enterprise software providers such as eGain Communications
Corp., eShare Technologies, Inc., Kana Communications, Inc., RightNow
Technologies, Inc. and WebLine Communications (a part of Cisco Systems'
applications technology group), some of which offer hosted solutions.
Furthermore, many of our competitors offer a broader range of customer
relationship management products and services than we currently offer. We may be
disadvantaged and our business may be harmed if companies doing business on the
Internet choose sales and customer service technology from such providers.
We also face potential competition from larger enterprise software companies
such as Oracle and Siebel Systems. In addition, established technology
companies, including IBM, Hewlett-Packard and Microsoft, may also leverage their
existing relationships and capabilities to offer real-time sales and customer
service applications.
Finally, we face competition from clients and potential clients that choose
to provide a real-time sales and customer service solution in-house as well as,
to a lesser extent, traditional offline customer service solutions, such as
telephone call centers.
We believe that competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. Many of our current and potential competitors have:
- longer operating histories;
- larger client bases;
- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may be
able to:
- undertake more extensive marketing campaigns;
- adopt more aggressive pricing policies; and
- make more attractive offers to businesses to induce them to use their
products or services.
Any delay in the general market acceptance of the real-time sales and
customer service solution business model would likely harm our competitive
position. Delays would allow our competitors additional time to improve their
service or product offerings, and would also provide time for new competitors to
develop real-time sales and customer service applications and solicit
prospective clients within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market share.
TECHNOLOGY
Three key technological features distinguish the LivePerson services:
- All of our customers share the same servers, databases, and network
connections. We are therefore able to accommodate our expanding customer
base and increasing system usage without incrementally adding new
hardware or network infrastructure.
- Our network, hardware and software are designed to accommodate our
clients' demand for high-quality 24-hours per day/seven-days per week
service.
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- As a hosted service we are able to add additional capacity and new
features quickly and efficiently. This has enabled us to immediately
provide these benefits simultaneously to our entire client base. In
addition, it allows us to maintain a relatively short development and
implementation cycle of several weeks.
As an application service provider, we focus on the development of tightly
integrated software design and network architecture. We have dedicated
significant resources to designing our software and network architecture based
on the fundamental principles of reliability and scalability.
SOFTWARE DESIGN. Our software design provides a reliable store-and-forward
message delivery solution that actively routes messages between operators and
Internet users.
The LivePerson real-time interaction platform can efficiently accommodate
additional features and functionality due to its distributed processes, which
can be replicated on several servers. In some cases, key processes are run
independently to enhance performance. Our software design is also based on open
standards. These standard protocols facilitate integration with our clients'
legacy and third-party systems, and include:
- Java
- XML (Extensible Mark-up Language)
- HTML (Hypertext Mark-up Language)
- SQL (Structured Query Language)
- Internet Protocol (IP)
NETWORK ARCHITECTURE. The software underlying our service is integrated
with a scalable and reliable network architecture. Our network is scalable in
that we do not need to incrementally add new hardware or network capacity for
each new LivePerson client. This network architecture is supported by data
centers that have redundant network connections, servers and other features,
ensuring a high level of reliability.
GOVERNMENT REGULATION
We are subject to federal, state and local regulation, including laws and
regulations applicable to access to or commerce over the Internet. Due to the
increasing popularity and use of the Internet and various other online services,
it is likely that a number of new laws and regulations will be adopted with
respect to the Internet or other online services covering issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. The nature of such legislation and the manner in which it may be
interpreted and enforced cannot be fully determined and, therefore, such
legislation could subject us and/or our clients or Internet users to potential
liability, which in turn could have an adverse effect on our business, results
of operations and financial condition. The adoption of any such laws or
regulations might also impair the growth of Internet use, which in turn could
decrease the demand for our services or increase the cost of doing business or
in some other manner have a material adverse effect on our business, results of
operations and financial condition. In addition, applicability to the Internet
of existing laws governing issues such as intellectual property, taxation and
personal privacy is uncertain. The vast majority of such laws were adopted prior
to the advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
As a result of collecting data from live online Internet user dialogues, our
clients may be able to analyze the commercial habits of Internet users. Privacy
concerns may cause Internet users to avoid online sites that collect such
behavioral information and even the perception of security and privacy concerns,
whether or not valid, may indirectly inhibit market acceptance of our services.
In addition,
10
our clients may be harmed by any laws or regulations that restrict their ability
to collect or use this data. The European Union and many countries within the
E.U. have adopted privacy directives or laws that strictly regulate the
collection and use of personally identifiable information of Internet users. The
United States has adopted legislation which governs the collection and use of
personally identifiable information of children under 13. The U.S. Federal Trade
Commission has also taken action against Web site operators who do not comply
with their stated privacy policies. Furthermore, Canada has recently adopted
legislation governing the collection and use of personal information. These and
other governmental efforts may limit our clients' ability to collect and use
information about their Internet users through our services. As a result, such
laws and efforts could create uncertainty in the marketplace that could reduce
demand for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs, or could in some other
manner have a material adverse effect on our business, results of operations and
financial condition.
In addition to privacy legislation, any new legislation or regulation
regarding the Internet, or the application of existing laws and regulations to
the Internet, could harm us. Additionally, as we expand outside the U.S., the
international regulatory environment relating to the Internet could have a
material and adverse effect on our business, results of operations and financial
condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely upon a combination of patent, copyright, trade secret and trademark
law, written agreements and common law to protect our proprietary technology,
processes and other intellectual property, to the extent that protection is
sought or secured at all. We currently have one U.S. patent application pending.
The U.S. Patent and Trademark Office has issued a non-final office action
rejecting our initial patent application. We have responded to the office action
but we cannot assure you that a patent will eventually be issued to us.
Furthermore, to the extent that the invention described in our U.S. patent
application was made public prior to the filing of the application, we may not
be able to obtain patent protection in certain foreign countries. In addition,
we have a common law trademark, "LivePerson", and three pending U.S. trademark
applications. The U.S. Patent and Trademark Office has issued non-final office
actions with respect to our trademark applications, requesting additional
information and making refusals. However, no final determinations as to the
registrability of the marks have been made. We have responded to these office
actions and, as a result, one of our trademark applications has been approved
for publication. The U.S. Patent and Trademark Office has not yet responded with
respect to our other two applications and, ultimately we may not be able to
secure registration of any of our trademarks. We do not have any trademarks
registered outside the U.S., nor do we have any trademark applications pending
outside the U.S.
Although we rely on patent, copyright, trade secret and trademark law,
written agreements and common law, we believe that factors such as the
technological and creative skills of our personnel, new service developments,
frequent enhancements and reliable maintenance are more essential to
establishing and maintaining a technology leadership position. We cannot assure
you that others will not develop technologies that are similar or superior to
our technology. We enter into confidentiality and other written agreements with
our employees, consultants and strategic partners, and through written
agreements, control access to and distribution of our software, documentation
and other proprietary information. Despite our efforts to protect our
proprietary rights, third parties may, in an unauthorized manner, attempt to
copy or otherwise obtain and use our service or technology or otherwise develop
a service with the same functionality as our products. Policing unauthorized use
of our products is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect proprietary rights as fully as do the
laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. Our services may be increasingly subject to third-party
infringement claims as the number of competitors in
11
our industry segment grows and the functionality of services in different
industry segments overlaps. Some of our competitors in the market for real-time
sales and customer service solutions may have filed or may intend to file patent
applications covering aspects of their technology. Although we believe that our
services and technology do not infringe upon the intellectual property rights of
others and that we have all rights necessary to utilize the intellectual
property employed in our business, we may be subject to claims alleging
infringement of third-party intellectual property rights. Any such claims could
require us to spend significant amounts in litigation, distract management from
other tasks of operating our business, pay damage awards, delay delivery of the
LivePerson services, develop non-infringing intellectual property or acquire
licenses to the intellectual property that is the subject of any such
infringement. Therefore, such claims could have a material adverse effect on our
business, results of operations and financial condition.
EMPLOYEES
As of March 1, 2001, we had 111 full-time employees. Members of senior
management have entered into employment agreements with us, some of which are
described in "Part III. Item 11. Executive Compensation--Employment Agreements."
None of our employees are covered by collective bargaining agreements. We
believe our relations with our employees are good.
ITEM 2. PROPERTIES
We currently lease an aggregate of approximately 83,500 square feet on two
floors at our headquarters location in New York City, which lease provides for
approximately 40,500 square feet on one floor through March 2010 and
approximately 43,000 square feet on the second floor through February 2011.
We also maintain offices in San Francisco, California of approximately 7,850
square feet, under a lease expiring in January 2005, and offices in Abingdon,
England of approximately 400 square feet, under a monthly lease agreement.
Our wholly-owned subsidiary, HumanClick Ltd., maintains offices in Moshav
Bnei Zion, Israel of approximately 2,700 square feet, under leases expiring in
2002, and offices in Oakland, California of approximately 250 square feet, under
a monthly lease agreement.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders through the solicitation
of proxies or otherwise during the fourth quarter of the fiscal year ending
December 31, 2000.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "LPSN" since our initial public offering on April 7, 2000. The following
table sets forth, for the periods indicated, the range of high and low bid
information (in dollars per share) of our common stock as quoted on the Nasdaq
National Market:
[Download Table]
HIGH LOW
---- ---
Year ended December 31, 2000:
Second Quarter (from April 7, 2000)....................... $11.00 $5.375
Third Quarter............................................. $ 9.50 $3.625
Fourth Quarter............................................ $ 4.16 $0.875
HOLDERS
As of March 12, 2001, there were approximately 1,708 holders of record of
our common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception. We intend to retain earnings, if any, to finance the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
We sold 94,500 shares of common stock on May 11, 2000 for $151,200 to
ShopNow.com Inc. (now known as Network Commerce Inc.) pursuant to the exercise
of an option. We issued 4,238,405 shares of common stock on October 12, 2000 to
the shareholders of HumanClick Ltd. ("HumanClick") in connection with our
acquisition of all of the outstanding capital stock of HumanClick. All such
issuances were made pursuant to an exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, because the issuances
did not involve any public offering.
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING
On April 12, 2000, we consummated our initial public offering of 4,000,000
shares of common stock, for which trading on the Nasdaq National Market
commenced on April 7, 2000, pursuant to the Registration Statement on Form S-1,
file number 333-95689, which was declared effective by the Securities and
Exchange Commission on April 6, 2000. The managing underwriters of the offering
were Chase Securities Inc., Thomas Weisel Partners LLC and PaineWebber
Incorporated. The offering did not terminate until after the sale of all
securities registered. The aggregate price of the offering shares was
$32.0 million and our net proceeds were approximately $28.1 million after
underwriters' discounts and commissions of approximately $2.2 million and other
expenses of approximately $1.7 million. Except for salaries, and reimbursements
for travel expenses and other out-of-pocket costs incurred in the ordinary
course of business, none of the proceeds from the offering have been paid by us,
directly or indirectly, to any of our directors or officers or any of their
associates, or to any persons owning ten percent or more of our outstanding
stock or to any of our affiliates. As of December 31, 2000, we have used
approximately $6.7 million of the net proceeds from the offering for product
development costs, sales and marketing activities and working capital, and
invested the remainder in cash and cash equivalents and short-term marketable
securities pending its use for other purposes.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data with respect to our consolidated
balance sheets as of December 31, 2000 and 1999 and the related consolidated
statements of operations for the years ended December 31, 2000, 1999 and 1998
have been derived from our audited consolidated financial statements which are
included herein. The consolidated financial data for the year ended
December 31, 2000 includes the results of operations of HumanClick from October
2000 (the date of its acquisition). See note 2 to our consolidated financial
statements for further information concerning the acquisition. The selected
financial data with respect to our balance sheets as of December 31, 1998, 1997
and 1996 and the related statements of operations for the years ended
December 31, 1997 and 1996 have been derived from our audited financial
statements which are not included herein. The following selected consolidated
financial data should be read in conjunction with the consolidated financial
statements and the notes thereto and the information contained in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue........................................... $ 6,279 $ 576 $ 1 $ -- $ --
Programming revenue....................................... -- 39 378 245 11
----------- ---------- --------- --------- ---------
Total revenue........................................... 6,279 615 379 245 11
----------- ---------- --------- --------- ---------
Operating expenses:
Cost of revenue, exclusive of $1,109, $198, $0, $0 and $0
for the years ended December 31, 2000, 1999, 1998, 1997
and 1996, respectively, reported below as non-cash
compensation expense.................................... 7,888 856 70 121 6
Product development, exclusive of $1,476, $566, $0, $0 and
$0 for the years ended December 31, 2000, 1999, 1998,
1997 and 1996, respectively, reported below as non-cash
compensation expense.................................... 8,209 1,637 93 -- --
Sales and marketing, exclusive of $4,822, $577, $0, $0 and
$0 for the years ended December 31, 2000, 1999, 1998,
1997 and 1996, respectively, reported below as non-cash
compensation expense.................................... 14,529 3,987 33 -- --
General and administrative, exclusive of $5,838, $1,338,
$25, $0 and $0 for the years ended December 31, 2000,
1999, 1998, 1997 and 1996, respectively, reported below
as non-cash compensation expense........................ 6,994 1,706 178 130 36
Amortization of goodwill and other intangibles............ 619 -- -- -- --
Non-cash compensation expense, net........................ 13,245 2,679 25 -- --
----------- ---------- --------- --------- ---------
Total operating expenses................................ 51,484 10,865 399 251 42
----------- ---------- --------- --------- ---------
Loss from operations........................................ (45,205) (10,250) (20) (6) (31)
----------- ---------- --------- --------- ---------
Other income (expense):
Other income.............................................. 65 -- -- -- --
Interest income........................................... 1,839 474 -- -- 1
Interest expense.......................................... (33) (1) -- -- --
----------- ---------- --------- --------- ---------
Total other income, net................................. 1,871 473 -- -- 1
----------- ---------- --------- --------- ---------
Net loss.................................................... (43,334) (9,777) (20) (6) (30)
Non-cash preferred stock dividend........................... 18,000 -- -- -- --
----------- ---------- --------- --------- ---------
Net loss attributable to common stockholders................ $ (61,334) $ (9,777) $ (20) $ (6) $ (30)
=========== ========== ========= ========= =========
Basic and diluted net loss per common share................. $ (2.50) $ (1.38) $ 0.00 $ 0.00 $ 0.00
=========== ========== ========= ========= =========
Weighted average basic and diluted shares outstanding....... 24,535,078 7,092,000 7,092,000 7,092,000 7,092,000
=========== ========== ========= ========= =========
[Enlarge/Download Table]
DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- --------- --------- ---------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 20,449 $ 14,944 $ 107 $ 10 $ 2
Working capital (deficit)............................... 20,280 13,380 (30) (35) (29)
Total assets............................................ 47,000 19,570 142 30 2
Redeemable convertible preferred stock.................. -- 18,990 -- -- --
Total stockholders' equity (deficit).................... 42,775 (2,046) (30) (35) (29)
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
STATEMENTS IN THE FOLLOWING DISCUSSION ABOUT LIVEPERSON THAT ARE NOT HISTORICAL
FACTS ARE FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT LIVEPERSON AND OUR INDUSTRY. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE SUCH STATEMENTS TO DIFFER MATERIALLY FROM ACTUAL FUTURE EVENTS OR RESULTS.
ANY SUCH FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. IT IS
ROUTINE FOR OUR INTERNAL PROJECTIONS AND EXPECTATIONS TO CHANGE AS THE YEAR OR
EACH QUARTER IN THE YEAR PROGRESS, AND THEREFORE IT SHOULD BE CLEARLY UNDERSTOOD
THAT THE INTERNAL PROJECTIONS AND BELIEFS UPON WHICH WE BASE OUR EXPECTATIONS
MAY CHANGE PRIOR TO THE END OF EACH QUARTER OR THE YEAR. ALTHOUGH THESE
EXPECTATIONS MAY CHANGE, WE ARE UNDER NO OBLIGATION TO INFORM YOU IF THEY DO.
OUR COMPANY POLICY IS GENERALLY TO PROVIDE OUR EXPECTATIONS ONLY ONCE PER
QUARTER, AND NOT TO UPDATE THAT INFORMATION UNTIL THE NEXT QUARTER. ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE PROJECTIONS
OR FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS REPORT,
PARTICULARLY IN THE SECTION ENTITLED "--RISK FACTORS THAT MAY AFFECT FUTURE
RESULTS."
RECENT EVENTS
In the first quarter of 2001, following a review of our business in
connection with our acquisition of HumanClick, we commenced restructuring
initiatives to streamline our operations, including the consolidation of our two
San Francisco Bay area offices. The restructuring is expected to result in a
reduction of our workforce by approximately 90 people by the end of the first
quarter of 2001. In the first quarter of 2001, we expect to record a charge of
approximately $3.0 million for severance and other expenses related to the
restructuring. In addition, in the first quarter of 2001, three senior
executives left LivePerson, including most recently, our President and Chief
Operating Officer. Our Chief Financial Officer, Timothy E. Bixby, has assumed
the additional position of President.
OVERVIEW
LivePerson is a leading application service provider of technology that
facilitates real-time sales and customer service for companies doing business on
the Internet. We offer our proprietary real-time interaction technology as an
outsourced service. We currently generate revenue from the sale of our
LivePerson services, which enables our clients to communicate directly with
Internet users via text-based chat, and to a lesser extent from related
professional services. Our clients can respond to Internet user inquiries in
real-time, and can thereby enhance their Internet users' online shopping
experience.
Our business was incorporated in the State of Delaware in November 1995
under the name Sybarite Interactive Inc.; however, we did not commence
operations until January 1996. We had no significant revenue until 1997, when we
began to generate revenue from services primarily related to Web-based community
programming and media design.
In 1998, we shifted our core business focus to the development of the
LivePerson services and phased out our prior programming efforts, which last
generated revenue in December 1999. We introduced the LivePerson services in
November 1998.
In January 2000, we completed a private placement of 3,157,895 shares of our
series D redeemable convertible preferred stock with an affiliate of, and other
entities associated with, Dell Computer Corporation and with NBC Interactive
Media, Inc. (a division of NBC) at a purchase price of $5.70 per share. We
received net proceeds of approximately $17.9 million from this private
placement. Our
15
series D redeemable convertible preferred stock converted, at a two-for-three
ratio, into 4,736,842 shares of common stock upon the closing of our initial
public offering on April 12, 2000, together with our other outstanding
convertible preferred stock. In connection with the issuance of our series D
redeemable convertible preferred stock, we recorded a non-cash preferred stock
dividend of $18.0 million, which relates to the beneficial conversion feature
associated with such preferred stock. The amount of this dividend is limited to
the gross proceeds received by us in connection with the sale of our series D
convertible preferred stock and was recorded in the first quarter of 2000
because the series D convertible preferred stock was, at the time it was issued,
immediately convertible at the option of the holder.
On April 12, 2000, we consummated our initial public offering, which
resulted in the issuance of 4,000,000 shares of our common stock at $8.00 per
share, from which we received net proceeds of approximately $28.1 million.
On October 12, 2000, we acquired HumanClick Ltd., a private company
organized under the laws of Israel. The purchase price was $9.7 million, which
included the issuance of 4,238,405 shares of our common stock valued at
$9.1 million and acquisition costs of $241,000. Through December 31, 2000,
operating expenses incurred by us related to HumanClick since the date of
acquisition have not had a material effect on our 2000 statement of operations.
We expect such expenses to increase in absolute dollars over time; however, we
do not expect such expenses to change materially as a percentage of revenue.
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our financial
information for the eight most recent quarters ended December 31, 2000. In our
opinion, this unaudited information has been prepared on a basis consistent with
our annual consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the unaudited information for the periods presented. This
information should be read in conjunction with the consolidated financial
statements, including the related notes, included elsewhere in this annual
report. The results of operations for any quarter are not necessarily indicative
of results that we may achieve for any subsequent periods.
[Enlarge/Download Table]
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
2000 2000 2000 2000 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
Revenue:
Service revenue.................... $ 2,330 $ 1,849 $ 1,326 $ 774 $ 396 $ 139 $ 26 $ 15
Programming revenue................ -- -- -- -- 3 4 23 9
------- -------- -------- -------- ------- ------- ----- -----
Total revenue................ 2,330 1,849 1,326 774 399 143 49 24
------- -------- -------- -------- ------- ------- ----- -----
Operating expenses:
Cost of revenue.................... 2,443 2,216 2,039 1,190 608 173 51 24
Product development................ 2,079 2,212 2,151 1,767 873 478 147 139
Sales and marketing................ 4,089 3,223 3,792 3,425 2,111 1,429 396 51
General and administrative......... 1,670 2,034 1,990 1,300 937 422 189 158
Amortization of goodwill and other
intangibles...................... 619 -- -- -- -- -- -- --
Non-cash compensation expense,
net.............................. 256 2,031 5,002 5,956 2,342 170 117 50
------- -------- -------- -------- ------- ------- ----- -----
Total operating expenses..... 11,156 11,716 14,974 13,638 6,871 2,672 900 422
------- -------- -------- -------- ------- ------- ----- -----
Loss from operations................. (8,826) (9,867) (13,648) (12,864) (6,472) (2,529) (851) (398)
------- -------- -------- -------- ------- ------- ----- -----
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[Enlarge/Download Table]
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
2000 2000 2000 2000 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
Other income (expense), net:
Other income....................... 65 -- -- -- -- -- -- --
Interest income.................... 415 551 582 291 217 199 38 20
Interest expense................... (20) (13) -- -- -- -- -- (1)
------- -------- -------- -------- ------- ------- ----- -----
Total other income, net...... 460 538 582 291 217 199 38 19
------- -------- -------- -------- ------- ------- ----- -----
Net loss............................. $(8,366) $ (9,329) $(13,066) $(12,573) $(6,255) $(2,330) $(813) $(379)
======= ======== ======== ======== ======= ======= ===== =====
Our revenue from the LivePerson services has increased in each of the last
eight quarters, from $15,000 to $2.3 million, due primarily to increased market
acceptance of our services, which is in part attributable to the growth of our
direct sales force. The growth of our sales force has allowed us to solicit more
prospective clients and to respond more quickly and effectively to their
inquiries. We have recently experienced slower revenue growth rates than in the
past and we cannot assure you that we will experience any future revenue growth.
The increase in cost of revenue has been primarily due to the addition of
client services personnel and the expansion of our technological infrastructure.
Costs associated with the expansion of our technological infrastructure include,
but are not limited to, depreciation and payments under our operating leases for
certain computer equipment.
General and administrative costs have generally increased in each of the
last eight quarters, from $158,000 to $1.7 million, principally due to an
increase in the number of employees and related occupancy costs and, to a lesser
extent, to professional fees. The decrease from $2.0 million in the quarter
ended September, 30 2000 to $1.7 million in the quarter ended December 31, 2000
is primarily attributable to a decrease in occupancy and related costs
associated with the consolidation of our New York offices and the reversal of
certain employee bonus accruals which were not required.
Amortization of goodwill and other intangibles is related to our acquisition
of HumanClick in October 2000. Prior to October 2000, we did not incur any
amortization of goodwill and other intangibles.
The decrease in non-cash compensation expense from the quarter ended
June 30, 2000 to the quarter ended December 31, 2000 is due to forfeitures of
employee stock options associated with the termination of employees who left
LivePerson primarily during the second half of 2000.
We have experienced substantial increases in our expenses since our
introduction of the LivePerson services and we anticipate that certain expenses
will continue to grow in the future. Although our revenue from the LivePerson
services has grown in each of the quarters since their introduction, we have
recently experienced slower revenue growth rates than in the past and we cannot
assure you that we will experience any future revenue growth or that we will
generate sufficient revenue to achieve profitability. Consequently, we believe
that period-to-period comparisons of our operating results may not be
meaningful, and as a result, you should not rely on them as an indication of
future performance.
REVENUE
With respect to the LivePerson services, our clients pay us an initial
non-refundable set-up fee, as well as a monthly fee for each operator access
account, which we refer to as a "seat." Our set-up fee is intended to recover
certain costs incurred by us (principally customer service, training and other
administrative costs) prior to deployment of our services. Such fees are
recorded as deferred revenue and recognized over a period of 24 months,
representing the estimated expected term of a client
17
relationship. As a result of recognizing set-up fees in this manner, combined
with the fact that we have more seats on an aggregate basis than clients,
revenue attributable to our monthly service fee for the years ended
December 31, 2000 and 1999 accounted for 85% and 95%, respectively, of total
LivePerson services revenue. In addition, because we expect the aggregate number
of seats to continue to grow, we expect the set-up fee to represent a decreasing
percentage of total revenue over time. We do not charge an additional set-up fee
if an existing client adds more seats. Our service agreements typically have no
termination date and are terminable by either party upon 30 to 60 days' notice
without penalty. We recognize monthly service revenue fees and professional
service fees as services are provided. Professional service fees consist of
training provided to customers. Given the time required to schedule training for
our clients' operators and our clients' resource constraints, we have
historically experienced a lag between signing a client contract and generating
revenue from that client. This lag has generally ranged from one day to
30 days.
We also have begun to enter into contractual arrangements that complement
our direct sales force. These are primarily with Web hosting and call center
service companies, pursuant to which LivePerson is paid a commission based on
revenue generated by these service companies from our referrals. Aggregate
commissions generated under such agreements to date, as a percentage of total
LivePerson services revenue, have not been material, although we expect such
commissions to increase in both absolute terms and as a percentage of total
LivePerson services revenue over time.
Prior to November 1998, when the LivePerson services were introduced, we
generated revenue from services primarily related to Web-based community
programming and media design. Revenue from such services was $0, $39,000 and
$378,000 for the years ended December 31, 2000, 1999 and 1998, respectively. As
of January 2000, we no longer generated any revenue from these services. Revenue
generated from Web-based community programming and media design services was
recognized upon completion of the project, provided that no significant
obligations remained outstanding and collection of the resulting receivable was
probable.
OPERATING EXPENSES
Our cost of revenue associated with programming activity consisted primarily
of personnel expenses associated with outsourced programming and design. We no
longer incurred these costs as of December 1998. We began developing the
LivePerson services in the third quarter of 1998. We did not allocate
development costs of the LivePerson services separately. Accordingly, since
November 1998, our cost of revenue has principally been associated with the
LivePerson services and has consisted of:
- compensation costs relating to employees who provide customer service to
our clients, consisting of 41 people at December 31, 2000 (including 18
employees of HumanClick) and 17 people at December 31, 1999;
- compensation costs relating to our network support staff, consisting of
11 people at December 31, 2000 and 5 people at December 31, 1999;
- allocated occupancy costs and related overhead; and
- the cost of supporting our infrastructure, including expenses related to
leasing space and connectivity for our services, as well as depreciation
of certain hardware and software.
Our product development expenses consist primarily of compensation and
related expenses for product development personnel, consisting of 40 people
(including 11 employees of HumanClick) and 15 people at December 31, 2000 and
1999, respectively, allocated occupancy costs and related overhead, outsourced
labor and expenses for testing new versions of our software. Product development
expenses are charged to operations as incurred.
18
Our sales and marketing expenses consist of compensation and related
expenses for sales personnel and marketing personnel, consisting of 58 and 21
people at December 31, 2000 and 1999, respectively, allocated occupancy costs
and related overhead, advertising, sales commissions, marketing programs, public
relations, promotional materials, travel expenses and trade show exhibit
expenses.
Our general and administrative expenses consist primarily of compensation
and related expenses for executive, accounting and human resources personnel,
consisting of 31 people (including 4 employees of HumanClick) and 15 people at
December 31, 2000 and 1999, respectively, allocated occupancy costs and related
overhead, professional fees, provision for doubtful accounts and other general
corporate expenses.
In 2000, we increased our allowance for doubtful accounts to $577,000 from
$85,000 at December 31, 1999, principally due to an increase in accounts
receivable. We base our allowance for doubtful accounts on specifically
identified known doubtful accounts plus a general reserve for potential future
doubtful accounts. We adjust our allowance for doubtful accounts when accounts
previously reserved have been collected.
NON-CASH COMPENSATION EXPENSE
In the years ended December 31, 2000, 1999 and 1998, we recorded and
aggregate of $0, $978,000 and $25,000, respectively, of non-cash compensation
expense in connection with grants to consultants of options to acquire an
aggregate of 458,010 shares of our common stock. The total values ascribed to
such options were determined using a Black-Scholes pricing model.
During May 1999, we issued an option to purchase 94,500 shares of common
stock at an exercise price of $1.60 per share to ShopNow.com Inc. (now known as
Network Commerce Inc.), a client, in connection with an agreement to provide the
LivePerson services to Network Commerce for two years. As discussed below, the
option was amended in February 2000. The original terms of the option provided
that it would vest in or before May 2001, if revenue generated by Network
Commerce met certain targets. We granted these options as an incentive for
entering into a two-year service agreement with us at a point in time when the
LivePerson services were new and their viability was unknown. The option had no
minimum revenue guarantee. At December 31, 1999, the total value ascribed to
this option, using a Black-Scholes pricing model, was $566,000. In 1999, we
amortized $86,000 of this deferred cost, of which $24,000 was offset against the
$27,000 of revenue recognized from Network Commerce. The remaining $62,000
constituted sales and marketing expense, all of which was recorded in the fourth
quarter of 1999, and is included in non-cash compensation expense in our 1999
statement of operations.
In February 2000, we amended the option agreement. Under the amendment, the
option became fully vested and immediately exercisable, and Network Commerce
exercised the option in May 2000. Network Commerce has agreed, however, that it
will not sell the underlying common stock until the earlier of five years or, if
certain revenue criteria are met, May 19, 2001. The value ascribed to the option
at the time the option agreement was amended, using a Black-Scholes pricing
model, was $1,014,000, which is being ratably amortized over the remaining
service period of approximately fifteen months because the vesting of the option
does not affect our obligation under the service agreement. In addition, the
ratable amortization of the remaining deferred cost of $1,014,000 is being
recorded as a reduction of the revenue recognized from Network Commerce with any
excess amortization recorded on a quarterly basis as sales and marketing
expense, which is included in non-cash compensation expense in our statement of
operations. We amortized $723,000 of the deferred cost during the year ended
December 31, 2000, of which $59,000 was offset against the $59,000 of revenue
recognized from Network Commerce. The remaining $664,000 of sales and marketing
expense is included in non-cash compensation expense in our 2000 statement of
operations.
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Through December 31, 2000, we granted or assumed, in connection with our
acquisition of HumanClick, stock options to purchase 9,424,072 shares of common
stock, of which options to purchase 7,669,553 shares of common stock at a
weighted average exercise price of $2.76 remained outstanding at December 31,
2000. Certain of these options were granted at less than the deemed fair value
at the date of grant. The deemed fair value of our common stock ranged from
$0.67 to $13.00 for the period during which these options were granted. In
connection with the granting of these options, we recorded deferred compensation
of $6.2 million in the year ended December 31, 1999 and recorded additional
deferred compensation of $18.2 million in the year ended December 31, 2000,
representing the difference between the deemed fair value of the common stock at
the date of grant for accounting purposes and the exercise price of the related
options. The aggregate amount of deferred compensation which was recorded in
connection with the grant of options and subsequently reversed against paid-in
capital in connection with the forfeitures of these options associated with the
termination of employees who left LivePerson during the year ended December 31,
2000, approximated $5.3 million. In the year ended December 31, 2000, we also
recorded deferred compensation of $272,000 relating to the remaining service
period of unvested options assumed in connection with our acquisition of
HumanClick in October 2000. These amounts were recorded as deferred compensation
in our consolidated financial statements and are being amortized over the
vesting period, typically three to four years, of the applicable options. In the
years ended December 31, 2000 and 1999, we amortized $11.9 million and
$1.6 million (net of forfeitures or cancellations of $2.0 million in connection
with employees who left LivePerson in 2000), respectively, of deferred
compensation. We expect to amortize the remaining deferred compensation balance
of $5.9 million at December 31, 2000 as follows:
- 2001--$3.6 million;
- 2002--$1.8 million; and
- 2003--$506,000.
We recorded an additional $666,000 of non-cash compensation expense during
2000 in connection with the vesting of options pursuant to employee severance
agreements.
In January 1999, we issued 41,667 shares of series A convertible preferred
stock in the amount of $50,000 in exchange for consulting services provided by
Silicon Alley Venture Partners, LLC.
RESULTS OF OPERATIONS
Due to the phasing out of our programming services and our limited operating
history, we believe that comparisons of our 2000 and 1999 operating results with
each other or with those of prior periods are not meaningful and that our
historical operating results should not be relied upon as indicative of future
performance.
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COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2000 AND 1999
REVENUE. Total revenue increased to $6.3 million for the year ended
December 31, 2000, from $615,000 for the year ended December 31, 1999. All of
our revenue in 2000 was from the LivePerson services, while 94% of our revenue
in 1999 was from the LivePerson services. These increases were due primarily to
increased marketing efforts of the LivePerson services, increased market
acceptance of our services and increased sales generated by LivePerson's
expanded sales force. The growth of our sales force has allowed us to solicit
more prospective clients and to respond more quickly and effectively to their
inquiries. We cannot assure that we will achieve similar growth, if any, in
future periods.
Revenue associated with Web-based community programming and media design
services decreased to $0 in the year ended December 31, 2000, from $39,000 in
the comparable period in 1999. We no longer provided these services as of
January 2000; accordingly, we believe period-to-period comparisons are not
meaningful.
COST OF REVENUE. Cost of revenue consists of compensation costs relating to
employees who provide customer service to our clients, compensation costs
relating to our network support staff, the cost of supporting our
infrastructure, including expenses related to leasing space and connectivity for
our services, as well as depreciation of certain hardware and software, and
allocated occupancy costs and related overhead. Cost of revenue increased to
$7.9 million in 2000, from $856,000 in 1999. This increase was primarily
attributable to costs associated with an increase in the number of LivePerson
network operations personnel and client services personnel to serve an expanding
client base. Our network operations organization grew to 11 people at
December 31, 2000, from 5 people at December 31, 1999, and our client services
organization grew to 41 people at December 31, 2000, from 17 people at
December 31, 1999.
PRODUCT DEVELOPMENT. Our product development expenses consist primarily of
compensation and related expenses for product development personnel. Product
development costs increased to $8.2 million in 2000, from $1.6 million in 1999.
This increase was primarily attributable to an increase in the number of
LivePerson product development personnel, which grew to 40 people at
December 31, 2000 (including 11 employees of HumanClick) from 15 people at
December 31, 1999, as well as allocated occupancy costs, related overhead and
outsourced labor. These increases are primarily attributable to product
enhancements and, to a lesser extent, to the development of new products.
SALES AND MARKETING. Our sales and marketing expenses consist of
compensation and related expenses for sales and marketing personnel, as well as
advertising, public relations and trade show exhibit expenses. Sales and
marketing expenses increased to $14.5 million in 2000, from $4.0 million in
1999. This increase was primarily attributable to increased expenses for on-line
and off-line advertising and marketing as well as increased headcount and
related personnel expenses. Our sales and marketing headcount grew to 58 people
at December 31, 2000 from 21 people at December 31, 1999. The increase in sales
staff headcount is attributable to the expansion of our sales efforts. The
increase in our marketing headcount and related expenses is due to our
increasing efforts to enhance our brand recognition, and to support customer
acquisition efforts.
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GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
primarily of compensation and related expenses for executive, accounting, human
resources and administrative personnel. General and administrative expenses
increased to $7.0 million in 2000, from $1.7 million in 1999. This increase was
due primarily to an increase in headcount, which grew to 31 people at
December 31, 2000 (including 4 employees of HumanClick) from 15 people at
December 31, 1999, and, to a lesser extent, due to insurance, professional fees,
occupancy costs and depreciation.
NON-CASH COMPENSATION EXPENSE, NET. Non-cash compensation expenses consist
primarily of amortization of deferred stock-based compensation in 2000 and 1999,
as well as compensation expense incurred in connection with options and
preferred stock issued to non-employees in lieu of payment for services rendered
in 1999. Deferred stock-based compensation represents the difference between the
exercise price and the deemed fair value of certain stock options granted to
employees. Deferred compensation is being amortized over the vesting period of
the individual options. Non-cash compensation expense increased to
$13.2 million in 2000, from $2.7 million in 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization expense
relates to goodwill and other intangibles recorded as a result of our
acquisition of HumanClick in October 2000.
OTHER INCOME. Interest income was $1.8 million and $474,000 in 2000 and
1999, respectively, and consists of interest earned on cash and cash equivalents
generated by the receipt of proceeds from our initial public offering in 2000
and preferred stock issuances in 2000 and 1999. Interest expense was $33,000 and
$1,000 in 2000 and 1999, respectively. The increase in interest income,
particularly since the second quarter of 1999, is due primarily to interest
earned on the net proceeds from our initial public offering and the private
placements of our series C and series D redeemable convertible preferred stock.
See "Part II. Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters--Use of Proceeds from Initial Public Offering." Other income
in 2000 consists primarily of amortization of deferred gain on the
sale-leaseback of certain computer equipment.
NET LOSS. Our net loss increased to $43.3 million in 2000, from
$9.8 million in 1999.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE. Total revenue increased to $615,000 in 1999, from $379,000 in 1998.
Revenue associated with the LivePerson services increased to $576,000 in 1999
from $1,000 in 1998 and revenue associated with Web-based community programming
and media design services decreased to $39,000 in 1999 from $378,000 in 1998. We
no longer provided these services as of January 2000; accordingly, we believe
period-to-period comparisons are not meaningful.
COST OF REVENUE. Cost of revenue increased to $856,000 in 1999, from $70,000
in 1998. This increase was primarily attributable to $279,000 of costs
associated with the addition of client services staff as well as $65,000 of
depreciation of computer hardware and software. We did not incur any
depreciation expense in 1998 because we rented all of our equipment during that
period, the total cost of which was not significant.
PRODUCT DEVELOPMENT. Product development costs increased to $1.6 million for
1999, from $93,000 in 1998. This increase was primarily attributable to $809,000
associated with an increase in the number of LivePerson services product
development personnel, which grew from four to 15 people in 1999, and $342,000
of technology development activities related to the LivePerson services,
consisting of network architecture and software design expenses.
SALES AND MARKETING. Sales and marketing expenses increased to $4.0 million
for 1999, from $33,000 in 1998. This increase was primarily attributable to
$1.1 million associated with an increase in salaries and related expenses
resulting from an increase in sales and marketing personnel, which grew from two
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to 21 people in 1999, and to an increase in advertising and promotional expenses
of $1.9 million, both of which related to the LivePerson services.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to
$1.7 million for 1999, from $178,000 in 1998. This increase was due primarily to
$711,000 associated with increases in personnel expenses related to support and
administration, occupancy costs, and to an increase of $339,000 in recruitment
costs, principally for our officers. The number of our executive, accounting and
human resources personnel grew from one to 15 in 1999.
NON-CASH COMPENSATION EXPENSE, NET. In 1999, non-cash expenses represented
amortization of deferred compensation of $1.6 million and non-cash expense
incurred in connection with options and preferred stock issued to non-employees
in lieu of payment for services rendered of $1.1 million.
OTHER INCOME. Interest income amounted to $474,000 for 1999, and consists of
interest earned on cash and cash equivalents generated by the receipt of
proceeds from our preferred stock issuances. Other income in 1998, representing
interest earned on cash balances, was less than $500.
NET LOSS. Our net loss increased to $9.8 million for 1999, from $20,000 in
1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations principally through
cash generated by private placements of convertible preferred stock and the
initial public offering of our common stock. Through December 31, 2000, we have
raised a total of $69.5 million in aggregate net proceeds. As of December 31,
2000, we had $21.4 million in cash and cash equivalents and marketable
securities, an increase of $6.5 million from December 31, 1999. We regularly
invest excess funds in short-term money market funds, commercial paper,
government securities, and short-term notes. In March 2000, we entered into a
letter of credit, which serves as the security deposit for a portion of our
lease of office space, in an aggregate amount of $2.0 million for 2000. We
entered into an additional letter of credit for $2.2 million in March 2001 in
connection with the other portion of our March 2000 lease of office space.
Net cash used in operating activities was $26.6 million for the year ended
December 31, 2000 and consisted primarily of net operating losses and an
increase in accounts receivable partially offset by an increase in non-cash
compensation, depreciation and amortization expenses, and deferred revenue. Net
cash used in operating activities was $6.0 million for the year ended
December 31, 1999 and consisted primarily of net operating losses, offset by
non-cash compensation expenses and changes in accounts payable.
Net cash used in investing activities was $15.0 million in the year ended
December 31, 2000 and was due to the purchase of fixed assets and capitalized
software and the purchase of "short-term available-for-sale" investments and
movement of certain cash to restricted cash, in part offset by the sale of
"short-term available-for-sale" investments. Net cash used in investing
activities was $2.6 million for the year ended December 31, 1999 and was due to
the purchase of fixed assets.
Net cash provided by financing activities was $47.0 million for the year
ended December 31, 2000 and was primarily attributable to proceeds from our
initial public offering, the sale of our series D convertible preferred stock
and exercise of our warrants and stock options. Net cash provided by financing
activities was $23.4 million for the year ended December 31, 1999 and was
primarily attributable to proceeds from the sale of our convertible preferred
stock.
As of December 31, 2000, our principal commitments were approximately
$34.7 million under various operating leases, of which $4.6 million is due in
2001. During the year ending December 31, 2001, we anticipate an increase in
capital expenditures and lease commitments consistent with our
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anticipated growth in operations, infrastructure and personnel. We do not
currently expect that our principal commitments for the year ended December 31,
2001 will exceed $5.0 million in the aggregate.
In the first quarter of 2000, we entered into three additional leases for
office space, one in San Francisco and two in New York City. The lease for our
San Francisco office space, entered into in February 2000, provides for annual
aggregate payments of $329,000. We also entered into two subleases for
approximately 8,000 and 4,000 square feet, respectively, in New York City, which
expired in November 2000 and provided for annual aggregate payments of $238,000
and $182,000, respectively. In March 2000, we entered into a lease for an
aggregate of approximately 83,500 square feet on two floors at a location in New
York City. The lease provisions with respect to one floor, consisting of
approximately 40,500 square feet, commenced in April 2000, with rent of
approximately $1.4 million per year in the first three years, $1.5 million per
year in years four through seven and $1.6 million per year in years eight
through ten. The related security deposit is $2.0 million for the first three
years, $1.3 million for years four through seven and $670,000 for years eight
through ten. At our option, we have provided the security deposit by a letter of
credit. The other floor consists of approximately 43,000 square feet, and the
lease provisions relating to that floor commenced in March 2001, with rent of
approximately $1.5 million per year in the first three years, $1.6 million per
year in years four through seven and $1.7 million per year in years eight
through ten. The related security deposit is $2.2 million for the first three
years, $1.5 million for years four through seven and $747,000 for years eight
through ten. At our option, we have provided the security deposit by a letter of
credit. During July 2000, we entered into an eighteen-month lease for computer
equipment requiring monthly payments of approximately $69,000.
Although our revenue has increased from quarter to quarter, we have incurred
significant costs to develop our technology and services, to hire employees in
our customer service, sales, marketing and administration departments, and for
the amortization of goodwill and other intangible assets, as well as non-cash
compensation costs. As a result, we have incurred significant net losses and
negative cash flows from operations since inception, and as of December 31,
2000, had an accumulated deficit of $71.2 million. These losses have been funded
primarily through the issuance of common stock in our initial public offering
and, prior to the initial public offering, the issuance of convertible preferred
stock.
In the first quarter of 2001, following a review of our business in
connection with our acquisition of HumanClick, we commenced a restructuring plan
in order to streamline our operations. We expect to record a charge for
severance and other related expenses due to the restructuring of approximately
$3.0 million in the first quarter of 2001, all of which is expected to be paid
by the end of 2001. These initiatives included the consolidation of our two San
Francisco Bay area offices, a reduction of our workforce by approximately
90 people by the end of the first quarter of 2001, intensified programs to
reduce our working capital requirements and curtailment of our capital and
marketing expenses, among other initiatives. We cannot assure you that through
these efforts, without increased revenue, we will be able to generate positive
cash flows from operations. Notwithstanding these efforts, we expect to continue
to devote a substantial amount of our capital resources to support our sales,
marketing, product development and customer service departments, our marketing
efforts, and the infrastructure necessary to support the growth in our customer
base and other general corporate activities. As a result, we expect to continue
to incur operating losses and negative cash flows for the foreseeable future.
We anticipate that our current cash and cash equivalents will be sufficient
to satisfy our working capital and capital requirements for at least the next 12
months. However, we cannot assure you that we will not require additional funds
prior to such time, and we would then seek to sell additional equity or debt
securities through public financings, or seek alternative sources of financing.
We cannot assure you that additional funding will be available on favorable
terms, when needed, if at all. If we are
24
unable to obtain any necessary additional financing, we may be required to
reduce the scope of our planned sales and marketing and product development
efforts, which could materially adversely affect our business, financial
condition and operating results. In addition, we may require additional funds in
order to fund more rapid expansion, to develop new or enhanced services or
products or to invest in complementary businesses, technologies, services or
products.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and, as amended by SFAS No. 137, was adopted by
us in the fourth quarter of 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The adoption of this
statement did not impact our historical financial statements as we currently do
not use derivative instruments.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"), which summarizes certain
of the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Our revenue recognition policies
are consistent with SAB No. 101; accordingly, its implementation did not have a
significant effect on our results of operations.
In March 2000, the EITF reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs," which provided guidance on when to capitalize
versus expense costs incurred to develop a web site. The consensus is effective
for web site development costs in quarters beginning after June 30, 2000. We
have applied the guidance as described by Issue 00-2 for the year ended
December 31, 2000, noting no material impact on our results of operations.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44") provides guidance for applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees." With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The adoption of FIN No. 44 on July 1, 2000 did not
have a material effect on our results of operations.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND EXPECT TO ENCOUNTER DIFFICULTIES
FACED BY EARLY STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS.
We have only a limited operating history providing the LivePerson services
upon which to base an evaluation of our current business and future prospects.
We began offering our services in November 1998 and we commenced offering the
HumanClick service in October 2000; accordingly, the revenue and income
potential of our business and the related market are unproven. As a result of
our limited operating history as a leading application service provider of
real-time sales and customer service technology for companies doing business on
the Internet, we have only 25 months of historical financial data relating to
the LivePerson services upon which to forecast revenue and results of
operations.
In addition, because this market is relatively new and rapidly evolving, we
have limited insight into trends that may emerge and affect our business. Before
investing in us, you should evaluate the risks, expenses and problems frequently
encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets. These risks
include our ability to:
- attract more clients and retain existing clients;
- sell additional seats for LivePerson Chat, which generate monthly fees,
and other services to our existing clients;
- increase or maintain current pricing levels for our services;
- effectively market and maintain our brand name;
- respond effectively to competitive pressures;
- continue to develop and upgrade our technology; and
- attract, integrate, retain and motivate qualified personnel.
If we are unsuccessful in addressing some or all of these risks, our
business, financial condition and results of operations would be materially and
adversely affected.
WE HAVE A HISTORY OF LOSSES, WE HAD AN ACCUMULATED DEFICIT OF $71.2 MILLION
AS OF DECEMBER 31, 2000 AND WE EXPECT TO INCUR SIGNIFICANT LOSSES FOR THE
FORESEEABLE FUTURE.
We have not achieved profitability and, as we expect to continue to incur
significant operating expenses and to make capital expenditures, we expect to
continue to experience significant losses and negative cash flow for the
foreseeable future. We recorded a net loss of $20,000 for the year ended
December 31, 1998 (the year in which we commenced offering the LivePerson
services). We had annual revenue of less than $6.3 million and $620,000 in the
years ended December 31, 2000 and 1999, respectively, resulting in a net loss of
$43.3 million and $9.8 million, respectively. In addition, for the year ended
December 31, 2000, we recorded a non-cash dividend of $18.0 million. The total
non-cash charge we recorded in connection with our 1999 and 2000 option grants
for the year ended December 31, 2000 was $11.9 million. The Company recorded an
additional $666,000 of non-cash compensation expense during 2000 in connection
with the vesting of options pursuant to employee severance agreements. As of
December 31, 2000, our accumulated deficit was approximately $71.2 million. Even
if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. Failure to
achieve or maintain profitability may materially and adversely affect the market
price of our common stock.
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WE HAVE AN UNPROVEN BUSINESS MODEL AND MAY NOT GENERATE SUFFICIENT REVENUE
FOR OUR BUSINESS TO SURVIVE.
Our business model is based on the delivery of real-time sales and customer
service technology and related services to companies doing business on the
Internet, a largely untested business. Sales and customer service historically
have been provided primarily in person or by telephone. Our business model
assumes that companies doing business on the Internet will choose to provide
sales and customer service via the Internet. Our business model also assumes
that many companies will recognize the benefits of an outsourced application,
that Internet users will choose to engage a customer service representative in a
live text-based interaction, that this interaction will maximize sales
opportunities and enhance the online shopping experience and that companies will
seek to have their online sales and customer service technology provided by us.
If any of these assumptions is incorrect, our business may be harmed.
WE EXPECT THAT A SUBSTANTIAL MAJORITY OF OUR REVENUE WILL COME FROM THE
LIVEPERSON CHAT SERVICE FOR THE FORESEEABLE FUTURE AND IF WE ARE NOT SUCCESSFUL
IN SELLING THIS SERVICE, OUR REVENUE WILL NOT INCREASE AND MAY DECLINE.
The success of our business currently substantially depends, and for the
foreseeable future will continue to substantially depend, on the sale of only
one service, LivePerson Chat. We cannot be certain that there will be client
demand for our services or that we will be successful in penetrating the market
for real-time sales and customer service technology. We have recently
experienced slower revenue growth rates than in the past and we cannot assure
you that we will experience any future revenue growth. A decline in the price
of, or fluctuation in the demand (by existing or potential clients) for, our
services, is likely to cause our revenue to decline.
THE SUCCESS OF OUR BUSINESS REQUIRES THAT CLIENTS CONTINUE TO USE THE
LIVEPERSON SERVICES AND PURCHASE ADDITIONAL SEATS.
Our LivePerson services agreements typically have no termination date and
are terminable upon 30 to 90 days' notice without penalty. If a significant
number of our clients, or any one client with a significant number of seats,
were to terminate these services agreements, reduce the number of seats
purchased or fail to purchase additional seats, our results of operations may be
negatively and materially affected. Our client retention rates have recently
declined as a result of a number of factors, including competition,
consolidation in the Internet industry and termination of operations by certain
of our clients. Dissatisfaction with the nature or quality of our services could
also lead clients to terminate our service. We depend on monthly fees from the
LivePerson services for substantially all our revenue. If our retention rate
declines further, our revenue could decline unless we are able to obtain
additional clients or alternate revenue sources. Further, because of the
historically small number of seats sold in initial orders, we depend on sales to
new clients and sales of additional seats to our existing clients.
OUR QUARTERLY REVENUE AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS WHICH MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
We expect our quarterly revenue and operating results to fluctuate
significantly in the future due to a variety of factors, including the following
factors which are in part within our control, and in part outside of our
control:
- market acceptance by companies doing business on the Internet of
real-time sales and customer service technology;
- our clients' business success;
- our clients' demand for seats and our other services;
- our ability to attract and retain clients;
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- the amount and timing of capital expenditures and other costs relating
to the expansion of our operations, including those related to
acquisitions;
- the introduction of new services by us or our competitors; and
- changes in our pricing policies or the pricing policies of our
competitors.
Our revenue and results may also fluctuate significantly in the future due to
the following factors that are entirely outside of our control:
- seasonal factors affecting our clients' businesses;
- economic conditions specific to the Internet, electronic commerce and
online media; and
- general economic conditions.
Many of our clients' businesses are seasonal. Our clients' demand for
real-time sales and customer service technology in general and their demand for
seats and our other services, in particular, may be seasonal as well. As a
result, our future revenue and profits may vary from quarter to quarter.
We do not believe that period-to-period comparisons of our operating results
are meaningful. You should not rely upon these comparisons as indicators of our
future performance.
Due to the foregoing factors, it is possible that our results of operations
in one or more future quarters may fall below the expectations of securities
analysts and investors. If this occurs, the trading price of our common stock
could decline.
OUR CLIENTS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD ADVERSELY
AFFECT OUR BUSINESS.
Some of our clients may experience difficulty in supporting their current
operations and implementing their business plans. These clients may reduce their
spending on our services, or may not be able to discharge their payment and
other obligations to us. The non-payment or late payment of amounts due to us
from a significant number of clients would negatively impact our financial
condition. These circumstances are influenced by general economic and
industry-specific conditions, and could have a material adverse impact on our
business, financial condition and results of operations. In addition, as a
result of these conditions, our clients, in particular our Internet-related
clients that may experience (or that anticipate experiencing) difficulty raising
capital, may elect to scale back the resources they devote to customer service
technology, including services such as ours. If the current environment for our
clients, including, in particular, our Internet-related clients, does not
improve, our business, results of operations and financial condition could be
materially adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
Since the launch of our services in November 1998, we have grown rapidly.
This growth has placed a significant strain on our managerial, operational,
technical and financial resources. In 2000, we replaced our existing accounting
and other back-office systems at a cost of approximately $1.2 million. The new
systems are being integrated with our operations, controls and procedures. If we
are not able to successfully integrate these new systems with our existing
systems, or if we incur significant additional costs in order to achieve such
integration, our business could be harmed. In order to manage our growth, we
must also continue to implement new or upgraded operating and financial systems,
procedures and controls. Our failure to expand our operations in an efficient
manner could cause our expenses to grow, our revenue to decline or grow more
slowly than expected and could otherwise have a material adverse effect on our
business, results of operations and financial condition.
STAFF ATTRITION COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL AND
OTHER RESOURCES.
We had 73 employees at December 31, 1999; 181 employees at December 31,
2000; and 111 employees at March 1, 2001. In the area of technology, we had 19
employees at December 31, 1999; 40
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employees at December 31, 2000; and 25 employees at March 1, 2001. Any staff
attrition we experience, whether initiated by the departing employees or by us,
could place a significant strain on our managerial, operational, financial and
other resources. To the extent that we do not initiate or seek any staff
attrition that occurs, there can be no assurance that we will be able to
identify and hire adequate replacement staff promptly, if at all, and even that
if such staff is replaced, we will be successful in integrating these employees.
In the first quarter of 2001, in addition to conducting performance-related
terminations, we commenced a restructuring plan pursuant to which we eliminated
a large number of positions in response to changes in our business needs, such
as redundancies in our research and development and client support functions and
the transition of a portion of our sales efforts from direct sales to more
automated Internet-based sales processes. We expect to evaluate our needs and
the performance of our staff on a periodic basis, and may choose to make further
adjustments in the future. If the size of our staff is significantly reduced,
either by our choice or otherwise, we could face significant management,
operational, financial and other constraints. For example, it may become more
difficult for us to manage existing, or establish new, relationships with
clients and other counterparties, or to expand and improve our service
offerings. It may also become more difficult for us to implement changes to our
business plan or to respond promptly to opportunities in the marketplace.
Further, it may become more difficult for us to devote personnel resources
necessary to maintain or improve existing systems, including our financial and
managerial controls, billing systems, reporting systems and procedures. Thus,
any significant amount of staff attrition could cause our business and financial
results to suffer.
OUR BUSINESS IS DEPENDENT ON A FEW KEY EMPLOYEES, INCLUDING OUR CHIEF
EXECUTIVE OFFICER, ROBERT P. LOCASCIO.
Our future success depends to a significant extent on the continued services
of our senior management team, including Robert P. LoCascio, our founder and
Chief Executive Officer. The loss of the services of any member of our senior
management team, in particular Mr. LoCascio, could have a material and adverse
effect on our business, results of operations and financial condition. In
addition, in the past six months, four of the members of our senior management
team (our Chief Technology Officer, Chief Operating Officer, Executive Vice
President for Worldwide Sales and Strategic Alliances, and our President/Chief
Operating Officer) left LivePerson. Timothy E. Bixby, our Chief Financial
Officer, has assumed the additional position of President. Although we do not
believe that recent changes in our senior management team have materially harmed
our business, they have distracted us from other important tasks, and we cannot
assure you that we will be able to successfully hire senior managers who can be
integrated, and who will work together successfully, with our existing
management team.
IF WE DO NOT SUCCESSFULLY INTEGRATE POTENTIAL FUTURE ACQUISITIONS, OUR
BUSINESS COULD BE HARMED.
In the future, we may acquire or invest in complementary companies, products
or technologies. Acquisitions and investments involve numerous risks to us,
including:
- difficulties in integrating operations, technologies, products and
personnel with LivePerson;
- diversion of financial and management resources from efforts related to
the LivePerson services or other then-existing operations; risks of
entering new markets beyond providing real-time sales and customer
service technology for companies doing business on the Internet;
- potential loss of either our existing key employees or key employees of
any companies we acquire; and
- our inability to generate sufficient revenue to offset acquisition or
investment costs.
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These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.
WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER
RISKS AS WE EXPAND INTERNATIONALLY.
In July 2000, we commenced operations in the United Kingdom. In addition, in
October 2000, we acquired HumanClick Ltd., an Israeli-based provider of
real-time online customer service applications with more than 100,000 customers
around the world and 27 employees. There are risks related to doing business in
international markets, such as changes in regulatory requirements, tariffs and
other trade barriers, fluctuations in currency exchange rates, more stringent
rules relating to the privacy of Internet users and adverse tax consequences. In
addition, there are likely to be different consumer preferences and requirements
in specific international markets. Furthermore, we may face difficulties in
staffing and managing any foreign operations. One or more of these factors could
harm any future international operations.
IF WE DO NOT SUCCEED IN ATTRACTING NEW PERSONNEL OR RETAINING AND MOTIVATING
OUR CURRENT PERSONNEL, OR IF WE ARE UNABLE TO OUTSOURCE CERTAIN FUNCTIONS, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE MATERIALLY AND
ADVERSELY AFFECTED.
We may be unable to retain our key employees or attract, integrate or retain
other highly qualified employees in the future. We have experienced, and expect
to continue to experience, difficulty in hiring and retaining highly-skilled
senior managers and other employees with appropriate qualifications, such as
employees combining customer service backgrounds with technical aptitude, and
employees with experience developing scalable computer networks. Also, our
recently announced workforce reductions may adversely affect the morale of, and
our ability to retain, those employees who were not terminated. Because our
stock price has recently suffered a significant decline, the stock options held
by our employees and other equity-based compensation may have diminished
effectiveness as employee retention devices. If our retention efforts are
ineffective, employee turnover could increase and our ability to provide
services to our clients would be materially and adversely affected.
OUR REPUTATION DEPENDS, IN PART, ON FACTORS WHICH ARE ENTIRELY OUTSIDE OF
OUR CONTROL.
Our services appear as a LivePerson-branded, a HumanClick-branded or a
custom-created icon on our clients' Web sites. The customer service operators
who respond to the inquiries of our clients' Internet users are employees or
agents of our clients; they are not our employees. As a result, we have no way
of controlling the actions of these operators. In addition, an Internet user may
not know that the operator is an employee or agent of our client, rather than a
LivePerson employee. If an Internet user were to have a negative experience in a
LivePerson-powered or HumanClick-powered real-time dialogue, it is possible that
this experience could be attributed to us, which could diminish our brand and
harm our business. Finally, we believe the success of our services depend on the
prominent placement of the icon on the client's Web site, over which we also
have no control.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE LIVEPERSON BRAND
NAME.
Building recognition of our brand is critical to establishing the advantage
of being among the first application service providers to provide real-time
sales and customer service and to attracting new clients. If we fail to
successfully promote and maintain our brand or incur significant expenses in
promoting our brand without an associated increase in our revenue, our business,
results of operations and financial condition may be materially and adversely
affected.
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WE ARE DEPENDENT ON TECHNOLOGY SYSTEMS THAT ARE BEYOND OUR CONTROL.
The success of the LivePerson services depends in part on our clients'
online services as well as the Internet connections of visitors to their Web
sites, both of which are outside of our control. As a result, it may be
difficult to identify the source of problems if they occur. In the past, we have
experienced problems related to connectivity which have resulted in slower than
normal response times to Internet user chat requests and messages and
interruptions in service. The LivePerson services rely both on the Internet and
on our connectivity vendors for data transmission. Therefore, even when
connectivity problems are not caused by the LivePerson services, our clients or
Internet users may attribute the problem to us. This could diminish our brand
and harm our business, divert the attention of our technical personnel from our
product development efforts or cause significant client relations problems.
In addition, we rely on two Web hosting service providers for Internet
connectivity to deliver our services, power, security and technical assistance.
Such providers have, in the past, experienced problems that have resulted in
slower than normal response times and interruptions in service. If we are unable
to continue utilizing the services of our existing Web hosting providers or if
our Web hosting services experience interruptions or delays, it is possible that
our business could be harmed.
Our service also depends on many third parties for hardware and software,
which products could contain defects. Problems arising from our use of such
hardware or software could require us to incur significant costs or divert the
attention of our technical personnel from our product development efforts. To
the extent any such problems require us to replace such hardware or software, we
may not be able to do so on acceptable terms, if at all.
TECHNOLOGICAL DEFECTS COULD DISRUPT OUR SERVICES, WHICH COULD HARM OUR
BUSINESS AND REPUTATION.
We face risks related to the technological capabilities of the LivePerson
services. We expect the number of simultaneous chats between our clients'
operators and Internet users over our system to increase significantly as we
expand our client base. Our network hardware and software may not be able to
accommodate this additional volume. Additionally, we must continually upgrade
our software to improve the features and functionality of the LivePerson
services in order to be competitive in our market. If future versions of our
software contain undetected errors, our business could be harmed. As a result of
major software upgrades at LivePerson, our client sites have, from time to time,
experienced slower than normal response times and interruptions in service. If
we experience system failures or degraded response times, our reputation and
brand could be harmed. We may also experience technical problems in the process
of installing and initiating the LivePerson services on new Web hosting
services. These problems, if unremedied, could harm our business.
The LivePerson services also depend on complex software which may contain
defects, particularly when we introduce new versions onto our servers. We may
not discover software defects that affect our new or current services or
enhancements until after they are deployed. It is possible that, despite testing
by us, defects may occur in the software. These defects could result in:
- damage to our reputation;
- lost sales;
- delays in or loss of market acceptance of our products; and
- unexpected expenses and diversion of resources to remedy errors.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE AND CHANGING
CLIENT PREFERENCES IN THE ONLINE SALES AND CUSTOMER SERVICE INDUSTRY AND THIS
MAY HARM OUR BUSINESS.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions in the online sales and
customer service industry or our clients' or Internet users' requirements, our
business, results of operations and financial condition would be materially and
31
adversely affected. Business on the Internet is characterized by rapid
technological change. In addition, the market for online sales and customer
service technology is relatively new. Sudden changes in client and Internet user
requirements and preferences, frequent new product and service introductions
embodying new technologies, such as broadband communications, and the emergence
of new industry standards and practices could render the LivePerson services and
our proprietary technology and systems obsolete. The rapid evolution of these
products and services will require that we continually improve the performance,
features and reliability of our services. Our success will depend, in part, on
our ability to:
- enhance the features and performance of the LivePerson services;
- develop and offer new services that are valuable to companies doing
business on the Internet and Internet users; and
- respond to technological advances and emerging industry standards and
practices in a cost-effective and timely manner.
If any of our new services, including upgrades to our current services, do not
meet our clients' or Internet users' expectations, our business may be harmed.
Updating our technology may require significant additional capital expenditures
and could materially and adversely affect our business, results of operations
and financial condition.
IF WE ARE NOT COMPETITIVE IN THE MARKET FOR REAL-TIME SALES AND CUSTOMER
SERVICE TECHNOLOGY, OUR BUSINESS COULD BE HARMED.
There are no substantial barriers to entry in the real-time sales and
customer service technology market, other than the ability to design and build
scalable software and, with respect to outsourced solution providers, the
ability to design and build scalable network architecture. Established or new
entities may enter this market in the near future, including those that provide
real-time interaction online, with or without the user's request.
We compete directly with companies focused on technology that facilitates
real-time sales and customer service interaction. Our competitors include
customer service enterprise software providers such as eGain Communications
Corp., eShare Technologies, Inc., Kana Communications, Inc., RightNow
Technologies, Inc. and WebLine Communications (a part of Cisco Systems'
applications technology group), some of which offer hosted solutions.
Furthermore, many of our competitors offer a broader range of customer
relationship management products and services than we currently offer. We may be
disadvantaged and our business may be harmed if companies doing business on the
Internet choose sales and customer service technology from such providers.
We also face potential competition from larger enterprise software companies
such as Oracle Corporation and Siebel Systems. In addition, established
technology companies, including IBM, Hewlett-Packard and Microsoft, may also
leverage their existing relationships and capabilities to offer real-time sales
and customer service applications.
Finally, we face competition from clients and potential clients that choose
to provide a real-time sales and customer service solution in-house as well as,
to a lesser extent, traditional offline customer service solutions, such as
telephone call centers.
We believe that competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. Many of our current and potential competitors have:
- longer operating histories;
- larger client bases;
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- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may be
able to:
- undertake more extensive marketing campaigns;
- adopt more aggressive pricing policies; and
- make more attractive offers to businesses to induce them to use their
products or services.
Any delay in the general market acceptance of the real-time sales and
customer service solution business model would likely harm our competitive
position. Delays would allow our competitors additional time to improve their
service or product offerings, and would also provide time for new competitors to
develop real-time sales and customer service applications and solicit
prospective clients within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market share.
OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT AND
ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
Our success and ability to compete depend, in part, upon the protection of
our intellectual property rights relating to the technology underlying the
LivePerson services. We currently have a U.S. patent application pending
relating to such technology and have not filed applications outside the U.S. The
U.S. Patent and Trademark Office has issued a non-final office action rejecting
our initial patent application. We have responded to the office action; however,
it is possible that:
- our pending patent application may not result in the issuance of a
patent;
- any patent issued may not be broad enough to protect our intellectual
property rights;
- any patent issued could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the invention claimed in the patent;
- current and future competitors may independently develop similar
technology, duplicate our service or design around any patent we may
have; and
- effective patent protection may not be available in every country in
which we do business.
Further, to the extent that the invention described in our U.S. patent
application was made public prior to the filing of the application, we may not
be able to obtain patent protection in certain foreign countries. We also rely
upon copyright, trade secret and trademark law, written agreements and common
law to protect our proprietary technology, processes and other intellectual
property, to the extent that protection is sought or secured at all. We
currently have a common law trademark, "LivePerson", and three pending U.S.
trademark applications. The U.S. Patent and Trademark Office has issued
non-final office actions with respect to our trademark applications, requesting
additional information and making refusals. However, no final determinations as
to the registrability of the marks have been made. We have responded to these
office actions and as a result, one of our trademark applications has been
approved for publication. The U.S. Patent and Trademark Office has not yet
responded with respect to our other applications, but ultimately we may not be
able to secure registration of any of our trademarks. In addition, we do not
have any trademarks registered outside the U.S., nor do we have any trademark
applications pending outside the U.S. We cannot assure you that any steps we
might take will be adequate to protect against infringement and misappropriation
of
33
our intellectual property by third parties. Similarly, we cannot assure you that
third parties will not be able to independently develop similar or superior
technology, processes or other intellectual property. The unauthorized
reproduction or other misappropriation of our intellectual property rights could
enable third parties to benefit from our technology without paying us for it. If
this occurs, our business, results of operations and financial condition would
be materially and adversely affected. In addition, disputes concerning the
ownership or rights to use intellectual property could be costly and
time-consuming to litigate, may distract management from operating our business
and may result in our loss of significant rights.
OUR PRODUCTS AND SERVICES MAY INFRINGE UPON INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES AND ANY INFRINGEMENT COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS
AND MAY DISTRACT OUR MANAGEMENT.
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of
third-party proprietary rights. If we infringe upon the rights of third parties,
we may not be able to obtain licenses to use those rights on commercially
reasonable terms. In that event, we would need to undertake substantial
reengineering to continue offering our services. Any effort to undertake such
reengineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business.
Furthermore, a party making such a claim could secure a judgment that requires
us to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our products. If any of
these events occurred, our business, results of operations and financial
condition would be materially and adversely affected.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS TO EXECUTE OUR BUSINESS STRATEGY
AND WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
We believe that our current cash and cash equivalents and cash generated
from operations, if any, will be sufficient to fund our working capital and
capital expenditure requirements for at least the next 12 months. To the extent
that we require additional funds to support our operations or the expansion of
our business, or to pay for acquisitions, we may need to sell additional equity,
issue debt or convertible securities or obtain credit facilities through
financial institutions. In the past, we have obtained financing principally
through the sale of preferred stock, common stock and warrants. If additional
funds are raised through the issuance of debt or preferred equity securities,
these securities could have rights, preferences and privileges senior to holders
of common stock. The terms of any debt securities could impose restrictions on
our operations. If additional funds are raised through the issuance of
additional equity or convertible securities, our stockholders could suffer
dilution. We cannot assure you that additional funding, if required, will be
available to us in amounts or on terms acceptable to us. If sufficient funds are
not available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of acquisition opportunities, develop or enhance our
services or products, or otherwise respond to competitive pressures would be
significantly limited. Those limitations would materially and adversely affect
our business, results of operations and financial condition.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE PERSONAL INFORMATION
BELONGING TO OUR CLIENTS' INTERNET USERS.
We maintain dialogue transcripts of the text-based chats between our clients
and Internet users and store on our servers information supplied voluntarily by
these Internet users in exit surveys which follow the chats. We provide this
information to our clients to allow them to perform Internet user analyses and
monitor the effectiveness of our services. Some of the information we collect in
text-based chats and exit surveys may include personal information, such as
contact and demographic information. If third parties were able to penetrate our
network security or otherwise misappropriate personal information relating to
our clients' Internet users or the text of customer service inquiries, we could
be
34
subject to liability. We could be subject to negligence claims or claims for
misuse of personal information. These claims could result in litigation which
could have a material adverse effect on our business, results of operations and
financial condition. We may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
RISKS RELATED TO OUR RECENT ACQUISITION OF HUMANCLICK LTD. AND ITS BUSINESS
IF WE DO NOT SUCCESSFULLY INTEGRATE HUMANCLICK OR THE MERGER'S BENEFITS DO
NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE MARKET PRICE
FOR OUR COMMON STOCK MAY DECLINE.
On October 12, 2000, we acquired HumanClick with the expectation that this
merger will result in significant benefits. We have no experience in managing a
customer base as large as HumanClick's and very little direct experience in
offering real-time, online customer service applications to small and mid-sized
businesses. Furthermore, HumanClick's principal offices are located in Israel
while our principal offices are located in New York; managing the business in a
coordinated fashion may therefore require additional management resources. We
will need to overcome these significant issues, among others, in order to
realize any benefits or synergies from the mergers. Our successful execution of
these post-merger events will involve considerable risk and may not be
successful.
The market price of our common stock may decline, and we may lose key
personnel and customers as a result of this merger if:
- we do not successfully integrate operations and personnel of HumanClick;
- we do not achieve the perceived benefits of the merger as rapidly or to
the extent anticipated by financial or industry analysts; or
- the effect of the merger on our financial results is not consistent with
the expectations of financial or industry analysts.
IF THE COSTS ASSOCIATED WITH THE HUMANCLICK ACQUISITION EXCEED THE BENEFITS
REALIZED, WE MAY EXPERIENCE INCREASED LOSSES.
We cannot assure you that we will ever generate sufficient revenue from the
sale of HumanClick's services, which have only recently begun to generate
revenue, to offset expenses associated with the acquisition. Accordingly, if the
benefits of this acquisition do not exceed the costs associated with it,
including dilution to our stockholders resulting from the issuance of up to
approximately 4.5 million shares of our common stock in the acquisition, our
financial results could be adversely affected.
POLITICAL, ECONOMIC AND MILITARY CONDITIONS IN ISRAEL COULD NEGATIVELY
IMPACT OUR HUMANCLICK BUSINESS.
Our HumanClick facilities are located in Israel. Although substantially all
of our sales are being made to customers outside Israel, we are directly
influenced by the political, economic and military conditions affecting Israel.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, which varies in degree and intensity, has caused security and
economic problems in Israel. Any major hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations. We cannot assure you that
ongoing or revived hostilities related to Israel will not have a material
adverse effect on our business. Several Arab countries still restrict business
with Israeli companies. We could be adversely affected by restrictive laws or
policies directed towards Israel and Israeli businesses.
35
RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN THE USE OF THE INTERNET AS A MEDIUM
FOR COMMERCE.
We cannot be sure that a sufficiently broad base of consumers will adopt,
and continue to use, the Internet as a medium for commerce. Our long-term
viability depends substantially upon the widespread acceptance and development
of the Internet as an effective medium for consumer commerce. Use of the
Internet to effect retail transactions is at an early stage of development.
Convincing our clients to offer real-time sales and customer service technology
may be difficult.
Demand for recently introduced services and products over the Internet is
subject to a high level of uncertainty. Few proven services and products exist.
The development of the Internet into a viable commercial marketplace is subject
to a number of factors, including:
- continued growth in the number of users;
- concerns about transaction security;
- continued development of the necessary technological infrastructure;
- development of enabling technologies;
- uncertain and increasing government regulation; and
- the development of complementary services and products.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INFRASTRUCTURE OF THE INTERNET.
To the extent that the Internet continues to experience growth in the number
of users and frequency of use by consumers resulting in increased bandwidth
demands, we cannot assure you that the infrastructure for the Internet will be
able to support the demands placed upon it. The Internet has experienced outages
and delays as a result of damage to portions of its infrastructure. Outages or
delays could adversely affect online sites, email and the level of traffic on
the Internet. We also depend on Internet service providers that provide our
clients and Internet users with access to the LivePerson services. In the past,
users have experienced difficulties due to system failures unrelated to our
service. In addition, the Internet could lose its viability due to delays in the
adoption of new standards and protocols required to handle increased levels of
Internet activity. Insufficient availability of telecommunications services to
support the Internet also could result in slower response times and negatively
impact use of the Internet generally, and our clients' sites (including the
LivePerson pop-up dialogue window) in particular. If the use of the Internet
fails to grow or grows more slowly than expected, if the infrastructure for the
Internet does not effectively support growth that may occur or if the Internet
does not become a viable commercial marketplace, we may not achieve
profitability and our business, results of operations and financial condition
will suffer.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Recently, the United
States Congress enacted Internet legislation relating to issues such as
children's privacy, copyright and taxation. The children's privacy legislation
imposes restrictions on the collection, use and distribution of personal
identification information obtained online from children under the age of 13.
The copyright legislation establishes rules governing the liability of Internet
service providers and Web site publishers for the copyright infringement of
Internet users. The tax legislation places a moratorium on certain forms of
Internet taxes for three years; however, this moratorium does not apply to sales
and use taxes. Additionally, the European Union recently adopted a directive
addressing data privacy which imposes restrictions on the collection, use and
processing of personal data. Existing legislation and any new legislation could
hinder the growth in use of the Internet generally and decrease the acceptance
of the Internet as a medium for communication,
36
commerce and advertising. The laws governing the Internet remain largely
unsettled, even in areas where legislation has been enacted. It may take several
years to determine whether and how existing laws such as those governing
intellectual property, taxation and personal privacy apply to the Internet and
Internet services. In addition, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the U.S. and abroad, which may impose additional burdens on companies
conducting business online. Our business, results of operations and financial
condition could be materially and adversely affected if we do not comply with
recent legislation or laws or regulations relating to the Internet that are
adopted or modified in the future.
For example, the LivePerson services allow our clients to capture and save
information about Internet users, possibly without their knowledge.
Additionally, our service uses a tool, commonly referred to as a "cookie," to
uniquely identify each of our clients' Internet users. To the extent that
additional legislation regarding Internet user privacy is enacted, such as
legislation governing the collection and use of information regarding Internet
users through the use of cookies, the effectiveness of the LivePerson services
could be impaired by restricting us from collecting information which may be
valuable to our clients. The foregoing could harm our business, results of
operations and financial condition.
SECURITY CONCERNS COULD HINDER COMMERCE ON THE INTERNET.
User concerns about the security of confidential information online has been
a significant barrier to commerce on the Internet and online communications. Any
well-publicized compromise of security could deter people from using the
Internet or other online services or from using them to conduct transactions
that involve the transmission of confidential information. If Internet commerce
is inhibited as a result of such security concerns, our business would be
harmed.
OTHER RISKS
OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER STOCKHOLDERS WILL BE
ABLE TO INFLUENCE MATTERS REQUIRING A STOCKHOLDER VOTE.
Our executive officers, directors and stockholders who each own greater than
5% of the outstanding common stock and their affiliates, in the aggregate,
beneficially own approximately 38.0% of our outstanding common stock. As a
result, these stockholders, if acting together, will be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership could also have the effect of delaying or preventing
a change in control.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR
STOCK PRICE.
If our stockholders sell substantial amounts of our common stock, including
shares issuable upon the exercise of outstanding options and warrants in the
public market, or if the our stockholders are perceived by the market as
intending to sell substantial amounts of our common stock, the market price of
our common stock could fall. These sales also might make it more difficult for
us to sell equity securities in the future at a time and price that we deem
appropriate. "Affiliates" of LivePerson may not sell their shares of our common
stock except pursuant to:
- an effective registration statement under the Securities Act covering
the resale of those shares;
- an exemption under Rule 144 of the Securities Act; or
- another applicable exemption under the Securities Act.
37
Persons who may be deemed to be affiliates of LivePerson include those
persons or entities who directly or indirectly control LivePerson, such as our
directors, executive officers and significant stockholders.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND MAY EXPERIENCE EXTREME PRICE
AND VOLUME FLUCTUATIONS IN THE FUTURE WHICH COULD REDUCE THE VALUE OF YOUR
INVESTMENT AND SUBJECT US TO LITIGATION.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock has fluctuated significantly in the past and may continue to be
highly volatile, with extreme price and volume fluctuations, in response to the
following factors, some of which are beyond our control:
- variations in our quarterly operating results;
- changes in market valuations of Internet and other technology companies;
- our announcements of significant client contracts, acquisitions and our
ability to integrate these acquisitions, strategic partnerships, joint
ventures or capital commitments;
- our failure to complete significant sales;
- additions or departures of key personnel;
- future sales of our common stock; and
- changes in financial estimates by securities analysts.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may in the future be the target of similar litigation, which could result in
substantial costs and distract management from other important aspects of
operating our business.
WE MAY FACE POSSIBLE NASDAQ DELISTING RESULTING IN A LIMITED PUBLIC MARKET
FOR OUR COMMON STOCK AND MAKING OBTAINING FUTURE EQUITY FINANCING MORE DIFFICULT
FOR US.
We must satisfy a number of requirements to maintain our listing on the
Nasdaq National Market, including maintaining a minimum bid price for our common
stock of $1.00 per share and maintaining a market value for our publicly-held
shares of at least $5 million. A company fails to satisfy these requirements if
its closing bid price remains below $1.00 per share or if the market value for
the publicly-held shares remains below $5 million, in each case, for 30
consecutive business days. From time to time, our common stock has had a closing
bid price below $1.00 per share. There can be no assurance that our bid price
will comply with the requirements for continued listing of our common stock on
the Nasdaq National Market.
If our common stock loses its Nasdaq National Market status, shares of our
common stock would likely trade in the over-the-counter market in the so-called
"pink sheets" or the OTC Bulletin Board, which was established for securities
that do not meet the Nasdaq National Market listing requirements. Consequently,
selling our common stock would be more difficult because smaller quantities of
shares would likely be bought and sold, transactions could be delayed, and
security analysts' and news media coverage of us may be reduced. These factors
could result in lower prices and larger spreads in the bid and ask prices for
shares of common stock.
Such delisting from the Nasdaq National Market or further declines in our
stock price could also greatly impair our ability to raise additional necessary
capital through equity or debt financing, and significantly increase the
ownership dilution to stockholders caused by our issuing equity in financing or
other transactions. The price at which we issue shares in such transactions is
generally based on the market price of our common stock and a decline in our
stock price could result in the need for us to
38
issue a greater number of shares to raise a given amount of funding or acquire a
given dollar value of goods or services.
In addition, if our common stock is not listed on the Nasdaq National
Market, we may become subject to Rule 15g-9 under the Securities and Exchange
Act of 1934, as amended. That rule imposes additional sales practice
requirements on broker-dealers that sell low-priced securities to persons other
than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability of broker-dealers to sell the common stock and affect the
ability of holders to sell their shares of our common stock in the secondary
market.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE
IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our amended and restated certificate of incorporation, such as
our staggered board of directors, the manner in which director vacancies may be
filled and provisions regarding the calling of stockholder meetings, could make
it more difficult for a third party to acquire us, even if doing so might be
beneficial to our stockholders. In addition, provisions of our amended and
restated bylaws, such as advance notice requirements for stockholder proposals,
and applicable provisions of Delaware law, such as the application of business
combination limitations, could impose similar difficulties. Further, our amended
and restated certificate of incorporation and our amended and restated bylaws
may not be amended without the affirmative vote of at least 66.67% of our board
of directors or without the affirmative vote of not less than 66.67% of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors (considered for this purpose as a single class) cast at a
meeting of our stockholders called for that purpose.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CURRENCY RATE FLUCTUATIONS
Though December 31, 2000, our results of operations, financial position and
cash flows have not been materially affected by changes in the relative values
of non-U.S. currencies to the U.S. dollar. The functional currency for our
operations in the United Kingdom is the U.K. pound (sterling) and the functional
currency of our wholly-owned Israeli subsidiary, HumanClick, is the U.S. dollar.
We do not use derivative financial instruments to limit our foreign currency
risk exposure.
COLLECTION RISK
Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.
INTEREST RATE RISK
Our investments consist of cash and cash equivalents and short-term
marketable securities. Therefore, changes in the market's interest rates do not
affect the value of the investments as recorded by us.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
Report of KPMG LLP, Independent Auditors.................... 41
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 42
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... 43
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended
December 31, 2000, 1999 and 1998.......................... 44
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 45
Notes to Consolidated Financial Statements.................. 46
40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
LivePerson, Inc.:
We have audited the accompanying consolidated balance sheets of
LivePerson, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
LivePerson, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
January 31, 2001
41
LIVEPERSON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
[Enlarge/Download Table]
DECEMBER 31,
-----------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $20,449 $14,944
Marketable securities..................................... 1,000 --
Accounts receivable, less allowance for doubtful accounts
of $577 and $85, as of December 31, 2000 and 1999,
respectively............................................ 1,271 465
Prepaid expenses and other current assets................. 747 597
------- -------
Total current assets.................................... 23,467 16,006
Property and equipment, net................................. 12,883 2,457
Goodwill and other intangibles, net......................... 8,291 --
Restricted cash related to lease............................ 2,000 --
Security deposits........................................... 68 487
Deferred offering costs..................................... -- 140
Deferred costs, net......................................... 291 480
------- -------
Total assets............................................ $47,000 $19,570
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,126 $ 1,776
Accrued expenses.......................................... 1,446 689
Deferred revenue.......................................... 615 161
------- -------
Total current liabilities............................... 3,187 2,626
------- -------
Long-term deferred revenue.................................. 277 --
Deferred rent............................................... 304 --
Deferred gain on sale-leaseback............................. 457 --
Commitments and contingencies
Series C redeemable convertible preferred stock, $.001 par
value per share; 0 shares authorized, issued and
outstanding at December 31, 2000 and 5,132,433 shares
authorized, issued and outstanding at December 31, 1999,
with an aggregate liquidation preference of $18,990 at
December 31, 1999......................................... -- 18,990
Series D redeemable convertible preferred stock, $.001 par
value per share; 0 shares authorized, issued and
outstanding at December 31, 2000 and 1999................. -- --
Stockholders' equity (deficit):
Preferred stock, $.001 par value per share; 5,000,000
shares authorized, 0 issued and outstanding at
December 31, 2000 and 183,043 shares authorized,
0 issued and outstanding at December 31, 1999........... -- --
Series A convertible preferred stock, $.001 par value per
share; 0 shares authorized, issued and outstanding at
December 31, 2000 and 2,541,667 shares authorized,
issued and outstanding at December 31, 1999, with an
aggregate liquidation preference of $3,000 at
December 31, 1999....................................... -- 3
Series B convertible preferred stock $.001 par value per
share; 0 shares authorized, issued and outstanding at
December 31, 2000 and 1,142,857 shares authorized,
issued and outstanding at December 31, 1999, with an
aggregate liquidation preference of $1,600 at
December 31, 1999....................................... -- 1
Common stock, $.001 par value per share; 100,000,000
shares authorized, 33,914,613 shares issued and
outstanding at December 31, 2000; 30,000,000 shares
authorized, 7,092,000 shares issued and outstanding at
December 31, 1999....................................... 34 7
Additional paid-in capital................................ 119,780 12,420
Deferred compensation..................................... (5,872) (4,644)
Accumulated deficit....................................... (71,167) (9,833)
------- -------
Total stockholders' equity (deficit).................... 42,775 (2,046)
------- -------
Total liabilities and stockholders' equity (deficit).... $47,000 $19,570
======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42
LIVEPERSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- ---------- ----------
Revenue:
Service revenue......................................... $ 6,279 $ 576 $ 1
Programming revenue -- 39 378
----------- ---------- ----------
Total revenue....................................... 6,279 615 379
----------- ---------- ----------
Operating expenses:
Cost of revenue, exclusive of $1,109, $198 and $0 for
the years ended December 31, 2000, 1999 and 1998,
respectively, reported below as non-cash compensation
expense............................................... 7,888 856 70
Product development, exclusive of $1,476, $566 and $0
for the years ended December 31, 2000, 1999 and 1998,
respectively, reported below as non-cash compensation
expense............................................... 8,209 1,637 93
Sales and marketing, exclusive of $4,822, $577 and $0
for the years ended December 31, 2000, 1999 and 1998,
respectively, reported below as non-cash compensation
expense............................................... 14,529 3,987 33
General and administrative, exclusive of $5,838, $1,338
and $25 for the years ended December 31, 2000, 1999
and 1998, respectively, reported below as non-cash
compensation expense.................................. 6,994 1,706 178
Amortization of goodwill and other intangibles.......... 619 -- --
Non-cash compensation expense, net...................... 13,245 2,679 25
----------- ---------- ----------
Total operating expenses............................ 51,484 10,865 399
----------- ---------- ----------
Loss from operations...................................... (45,205) (10,250) (20)
----------- ---------- ----------
Other income (expense):
Other income............................................ 65 -- --
Interest income......................................... 1,839 474 --
Interest expense........................................ (33) (1) --
----------- ---------- ----------
Total other income, net............................. 1,871 473 --
----------- ---------- ----------
Net loss.................................................. (43,334) (9,777) (20)
Non-cash preferred stock dividend......................... 18,000 -- --
----------- ---------- ----------
Net loss attributable to common stockholders.............. $ (61,334) $ (9,777) $ (20)
=========== ========== ==========
Basic and diluted net loss per common share............... $ (2.50) $ (1.38) $ 0.00
=========== ========== ==========
Weighted average shares outstanding used in basic and
diluted net loss per common share calculation........... 24,535,078 7,092,000 7,092,000
=========== ========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
43
LIVEPERSON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
[Enlarge/Download Table]
SERIES A PREFERRED SERIES B PREFERRED
STOCK STOCK COMMON STOCK ADDITIONAL
--------------------- --------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- ---------- -------- ---------- -------- ----------
Balance at December 31, 1997....... -- $ -- -- $ -- 7,092,000 $ 7 $ (6)
Issuance of stock options in lieu
of payment for services.......... -- -- -- -- -- -- 25
Net loss........................... -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- --- --------
Balance at December 31, 1998....... -- -- -- -- 7,092,000 7 19
Issuance of stock options in lieu
of payment for services.......... -- -- -- -- -- -- 978
Issuance of stock options to
employees below fair market
value............................ -- -- -- -- -- -- 6,233
Amortization of deferred
compensation..................... -- -- -- -- -- -- --
Issuance of stock options to a
client........................... -- -- -- -- -- -- 566
Issuance of Class A preferred stock
and warrants..................... 2,416,667 3 -- -- -- -- 2,899
Issuance of Class A preferred stock
in lieu of payment for
services......................... 41,667 -- -- -- -- -- 50
Conversion of note payable into
shares of Class A preferred
stock............................ 83,333 -- -- -- -- -- 100
Issuance of Class B preferred stock
and warrants, net of $15 issuance
costs............................ -- -- 1,142,857 1 -- -- 1,585
Offering costs in connection with
Series C redeemable preferred
stock............................ -- -- -- -- -- -- (10)
Net loss........................... -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- --- --------
Balance at December 31, 1999....... 2,541,667 3 1,142,857 1 7,092,000 7 12,420
Offering costs in connection with
Series D redeemable preferred
stock............................ -- -- -- -- -- -- (79)
Non-cash preferred stock
dividend......................... -- -- -- -- -- -- 18,000
Issuance of common stock in
connection with initial public
offering, net of $3,899 in
offering costs................... -- -- -- -- 4,000,000 4 28,097
Conversion of all outstanding
convertible preferred stock in
connection with initial public
offering......................... (2,541,667) (3) (1,142,857) (1) 17,962,273 18 36,976
Issuance of common stock upon
exercise of stock options and
warrants......................... -- -- -- -- 595,984 1 833
Issuance of common stock in
connection with Employee Stock
Purchase Plan.................... -- -- -- -- 25,951 -- 51
Issuance of stock options to a
client........................... -- -- -- -- -- -- 534
Issuance of common stock and
options in connection with
HumanClick acquisition........... -- -- -- -- 4,238,405 4 9,139
Deferred stock based compensation,
net of forfeitures............... -- -- -- -- -- -- 12,871
Deferred stock based compensation
assumed in connection with
HumanClick acquisition........... -- -- -- -- -- -- 272
Acceleration of employee stock
options.......................... -- -- -- -- -- -- 666
Amortization of deferred
compensation, net of
forfeitures...................... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- --- --------
Balance at December 31, 2000....... -- $ -- -- $ -- 33,914,613 $34 $119,780
========== ==== ========== ==== ========== === ========
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------- ------------ --------
Balance at December 31, 1997....... $ -- $ (36) $ (35)
Issuance of stock options in lieu
of payment for services.......... -- -- 25
Net loss........................... -- (20) (20)
-------- -------- --------
Balance at December 31, 1998....... -- (56) (30)
Issuance of stock options in lieu
of payment for services.......... -- -- 978
Issuance of stock options to
employees below fair market
value............................ (6,233) -- --
Amortization of deferred
compensation..................... 1,589 -- 1,589
Issuance of stock options to a
client........................... -- -- 566
Issuance of Class A preferred stock
and warrants..................... -- -- 2,902
Issuance of Class A preferred stock
in lieu of payment for
services......................... -- -- 50
Conversion of note payable into
shares of Class A preferred
stock............................ -- -- 100
Issuance of Class B preferred stock
and warrants, net of $15 issuance
costs............................ -- -- 1,586
Offering costs in connection with
Series C redeemable preferred
stock............................ -- -- (10)
Net loss........................... -- (9,777) (9,777)
-------- -------- --------
Balance at December 31, 1999....... (4,644) (9,833) (2,046)
Offering costs in connection with
Series D redeemable preferred
stock............................ -- -- (79)
Non-cash preferred stock
dividend......................... -- (18,000) --
Issuance of common stock in
connection with initial public
offering, net of $3,899 in
offering costs................... -- -- 28,101
Conversion of all outstanding
convertible preferred stock in
connection with initial public
offering......................... -- -- 36,990
Issuance of common stock upon
exercise of stock options and
warrants......................... -- -- 834
Issuance of common stock in
connection with Employee Stock
Purchase Plan.................... -- -- 51
Issuance of stock options to a
client........................... -- -- 534
Issuance of common stock and
options in connection with
HumanClick acquisition........... -- -- 9,143
Deferred stock based compensation,
net of forfeitures............... (12,871) -- --
Deferred stock based compensation
assumed in connection with
HumanClick acquisition........... (272) -- --
Acceleration of employee stock
options.......................... -- -- 666
Amortization of deferred
compensation, net of
forfeitures...................... 11,915 -- 11,915
Net loss........................... -- (43,334) (43,334)
-------- -------- --------
Balance at December 31, 2000....... $ (5,872) $(71,167) $ 42,775
======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44
LIVEPERSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
---------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (43,334) $(9,777) $(20)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Non-cash compensation expense, net...................... 13,304 2,703 25
Depreciation............................................ 2,316 98 --
Amortization of goodwill and other intangibles.......... 619 -- --
Amortization of gain on sale-leaseback.................. (65) -- --
Provision for doubtful accounts......................... 527 85 15
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF
ACQUISITION:
Accounts receivable....................................... (1,333) (540) (8)
Prepaid expenses and other current assets................. 327 (597) --
Security deposits......................................... 419 (487) --
Accounts payable.......................................... (673) 1,759 (23)
Accrued expenses.......................................... 287 634 30
Deferred revenue.......................................... 730 161 --
Deferred rent............................................. 304 -- --
---------- ------- ----
Net cash used in operating activities................. (26,572) (5,961) 19
---------- ------- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized
software................................................ (14,841) (2,555) --
Proceeds from sale-leaseback of property and equipment.... 2,721 -- --
Purchase of marketable securities available-for-sale...... (40,802) -- --
Sale of marketable securities available-for-sale.......... 39,802 -- --
Purchase of restricted cash............................... (2,000) -- --
Cash acquired in HumanClick acquisition................... 150 -- --
---------- ------- ----
Net cash used in investing activities................. (14,970) (2,555) --
---------- ------- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock related to
initial public offering................................. 28,101 -- --
Net proceeds from issuance of Series A, B, C and D
preferred stock and warrants to acquire common stock.... 17,921 23,468 --
Proceeds from issuance of common stock in connection with
the exercise of warrants and options.................... 834 -- --
Proceeds from issuance of common stock in connection with
Employee Stock Option Plan.............................. 51 -- --
Deferred offering costs................................... 140 (140) --
Proceeds from issuance of note payable.................... -- -- 100
Due to (from) officer..................................... -- 25 (22)
---------- ------- ----
Net cash provided by financing activities............. 47,047 23,353 78
---------- ------- ----
Net increase in cash and cash equivalents............. 5,505 14,837 97
Cash and cash equivalents at the beginning of the year.... 14,944 107 10
---------- ------- ----
Cash and cash equivalents at the end of the year.......... $ 20,449 $14,944 $107
========== ======= ====
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest................................................ $ 33 $ 1 $ --
Income taxes............................................ -- -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common stock and options issued for net assets of
HumanClick business acquired............................ 9,415 -- --
Conversion of convertible preferred stock into common
stock................................................... 36,990 -- --
Conversion of notes payable into Series A preferred
stock................................................... -- 100 --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
45
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
LivePerson, Inc. (the "Company" or "LivePerson") was incorporated in the
State of Delaware in 1995 under the name of Sybarite Interactive Inc. The
Company, which commenced operations in 1996, changed its name to Live
Person, Inc. in January 1999 and to LivePerson, Inc. in March 2000. The Company
is a leading application service provider of technology that facilitates
real-time sales and customer service for companies doing business on the
Internet.
The Company's primary revenue source is from the sale of the LivePerson
services, which is conducted within one operating segment. Prior to
November 1998, when the LivePerson services were introduced, the Company
provided services primarily related to Web-based community programming and media
design.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the operations of LivePerson
and its wholly-owned subsidiaries (see note 2). All significant intercompany
balances and transactions have been eliminated in consolidation.
(C) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. These estimates and assumptions relate to estimates of
collectibility of accounts receivable, the realization of goodwill and other
intangible assets, the expected term of a client relationship, accruals and
other factors. Actual results could differ from those estimates.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities, with original maturities
of three months or less when acquired, to be cash equivalents.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the related assets, generally three to five years
for equipment and software and seven years for furniture and fixtures. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the asset.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including fixed assets and goodwill, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If events or changes in
circumstances indicate that the carrying amount of an asset may
46
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not be recoverable, the Company estimates the undiscounted future cash flows to
result from the use of the asset and its ultimate disposition. If the sum of the
undiscounted cash flows is less than the carrying value, the Company recognizes
an impairment loss, measured as the amount by which the carrying value exceeds
the fair value of the asset. Fair value would generally be determined by market
value. Assets to be disposed of are the lower of the carrying value or fair
value less costs to sell.
(G) MARKETABLE SECURITIES
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
establishes the accounting and reporting requirements for all debt securities
and for investments in equity securities that have a readily determinable fair
market value. All marketable securities must be classified as one of the
following: held-to-maturity, available for sale or trading securities. The
Company's marketable securities consist of available-for-sale securities. The
Company's available-for-sale securities are carried at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity (deficit).
Realized gains and losses are computed on the basis of the specific
identification method. Realized gains and losses and unrealized declines in
value judged to be other-than temporary, are included in other income, net. The
cost of available-for-sale securities sold are based on the specific
identification method and interest earned is included in interest income.
For the years ended December 31, 2000, 1999 and 1998, the Company did not
recognize any material gains or losses upon the sale of securities. At
December 31, 2000, the fair value of the Company's available-for-sale securities
approximated cost and unrealized gains and losses were not material.
(H) RESTRICTED CASH AND LETTERS OF CREDIT
The Company is contingently liable under standby letters of credit totaling
approximately $2,300 at December 31, 2000. These letters of credit relate to the
Company's office-space leases which are fully secured by certificates of
deposits held by the Company. Management does not expect any material losses to
result from these off-balance-sheet instruments. The fair value of these
instruments is zero. At December 31, 2000, long-term restricted cash of $2,000
consisted of a security deposit held in a certificate of deposit in connection
with the lease of the Company's principal executive offices.
(I) REVENUE RECOGNITION
Prior to November 1998, when the LivePerson services were introduced, the
Company generated revenue from services primarily related to Web-based community
programming and media design. Revenues from such services were recognized upon
completion of the project, provided that no significant Company obligations
remained and collection of the resulting receivable was probable. As of
December 31, 1999, the Company no longer generated any revenues from these
services.
47
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1998, the Company began offering the LivePerson services. The
LivePerson services facilitate real-time sales and customer service for
companies doing business on the Internet. The Company charges an initial
non-refundable set-up fee as well as a monthly fee for each operator access
account ("seat") using the LivePerson services.
The initial set-up fee principally represents customer service, training and
other administrative costs related to the deployment of the LivePerson services.
Such fees are initially recorded as deferred revenue and recognized ratably over
a period of 24 months, representing the Company's current estimate of the
expected term of a client relationship. This estimate may change in the future.
The Company does not charge an additional set-up fee if an existing client adds
more seats. Unamortized deferred fees, if any, are recognized upon termination
of the agreement with the customer.
The Company also records revenue based upon a monthly fee charged for each
seat using the LivePerson services, provided that no significant Company
obligations remain and collection of the resulting receivable is probable. The
Company recognizes monthly service revenue fees as services are provided. The
Company's service agreements typically have no termination date and are
terminable by either party upon 30 to 90 days' notice without penalty.
The Company also generates revenue from web hosting and call center
referrals. The Company recognizes commissions based on revenue generated from
these referrals upon notification from the other party of sales attributable to
LivePerson. To date, revenues from commissions have not been material.
Professional services revenue consists of training provided to customers.
Revenue is recognized when services are provided and collection of the resulting
receivable is probable. During 2000, revenue from professional services was
$195.
(J) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
(K) ADVERTISING COSTS
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs totaled approximately $4,497, $1,935 and $1 for the years
ended December 31, 2000, 1999 and 1998, respectively.
48
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's business is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including its limited operating
history, unproven business model and the limited history of commerce on the
Internet. The Company's success may depend, in part, upon the emergence of the
Internet as a commerce medium, prospective product development efforts and the
acceptance of the Company's solutions by the marketplace.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts receivable and restricted cash which approximate fair value at
December 31, 2000 because of the short-term nature of these instruments. The
Company invests its cash and cash equivalents and restricted cash with quality
financial institutions and performs periodic evaluations of these instruments
and the relative credit standings of the institutions with which it invests. At
certain times, the Company's cash balances with any one financial institution
may exceed Federal Deposit Insurance Corporation insurance limits. The Company
believes it mitigates its risk by depositing its cash balances with high credit,
quality financial institutions.
The Company's customers are primarily concentrated in the United States. The
Company performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of customers, historical trends and other
information; to date, such losses have been within management's expectations.
Concentrations of credit risk are limited due to the Company's large number of
customers. The Company's client base is concentrated among dedicated Internet
companies, Fortune 1000 companies and other companies with commercial Web sites.
The Company has not experienced any significant credit loss to date. No
single customer accounted for or exceeded 10% of revenues in 2000, 1999 or 1998
or 10% of accounts receivable in 2000 or 1999.
(M) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123. The Company
amortizes deferred compensation on a graded vesting methodology in accordance
with FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Award Plans."
49
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) BASIC AND DILUTED NET LOSS PER SHARE
The Company calculates earnings per share in accordance with the provisions
of SFAS No. 128, "Earnings Per Share ("EPS")," and the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 98. Under SFAS No. 128, basic
EPS excludes dilution for common stock equivalents and is computed by dividing
net income or loss attributable to common shareholders by the weighted average
number of common shares outstanding for the period. All options, warrants or
other potentially dilutive instruments issued for nominal consideration are
required to be included in the calculation of basic and diluted net loss
attributable to common stockholders. The Company has included 20,229 shares of
common stock in the calculation of basic and diluted net loss attributable to
common stockholders from October 2000 which relate to certain options that were
originally issued by HumanClick for nominal consideration and subsequently
assumed by the Company in connection with its acquisition of HumanClick. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and resulted in the issuance of common stock. Diluted net loss per share
presented is equal to basic net loss per share since all common stock
equivalents are anti-dilutive for each of the periods presented.
Diluted net loss per common share for the years ending December 31, 2000,
1999 and 1998 does not include the effects of options to purchase 7,669,553,
3,612,345 and 197,100 shares of common stock, respectively, warrants to purchase
457,030, 718,749 and 0 shares of common stock, respectively, and an aggregate of
0, 13,225,431 and 0 shares of convertible preferred stock on an "as if"
converted basis, respectively, as the effect of their inclusion is anti-dilutive
during each period.
(O) STOCK SPLITS
Effective January 20, 1999, the Company authorized and implemented a
10-for-1 split of shares of the Company's common stock in the form of a common
stock dividend. Accordingly, all common share and per common share information,
warrants and options in the accompanying consolidated financial statements has
been retroactively restated to reflect the effect of the stock split.
Effective March 8, 2000, the Company authorized and implemented a 3-for-2
split of shares of the Company's common stock in the form of a common stock
dividend. Accordingly, all common share and per common share information,
warrants and options in the accompanying consolidated financial statements has
been retroactively restated to reflect the effect of the stock split.
(P) SEGMENT REPORTING
The Company accounts for its segment information in accordance with the
provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 131 establishes annual and interim reporting
standards for operating segments of a company. SFAS No. 131 requires disclosures
of selected segment-related financial information about products, major
customers, and geographic areas. The Company is organized in a single operating
segment for purposes of making operating decisions and assessing performance.
The chief operating decision-maker evaluates performance, makes operating
decisions, and allocates resources based on financial data consistent with the
presentation in the accompanying consolidated financial statements.
50
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's revenues have been earned primarily from customers in the
United States. In addition, all significant operations and assets are based in
the United States.
(Q) COMPREHENSIVE LOSS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the Company to report in its consolidated
financial statements, in addition to its net income (loss), comprehensive income
(loss), which includes all changes in equity during a period from non-owner
sources including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. There were no material differences between the
Company's comprehensive loss and its net loss for all periods presented.
(R) COMPUTER SOFTWARE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. The Company adopted SOP 98-1 in 1999 and capitalized
$3,952 as of December 31, 2000 and $635 as of December 31, 1999.
(S) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other purchased intangible assets are stated net of accumulated
amortization of $619 at December 31, 2000. Goodwill and other purchased
intangible assets are being amortized on a straight-line basis over the expected
period of benefit of three years.
(T) RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial
statements to conform to the current year's presentation.
(U) DEFERRED RENT
The Company records rent expense on a straight line basis over the term of
the related lease. The difference between the rent expense recognized for
financial reporting purposes and the actual payments made in accordance with the
lease agreement is recognized as deferred rent liability. Rent expense charged
to operations for the year ended December 31, 2000 exceeded actual rental
payments by $304.
51
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(V) PRODUCT DEVELOPMENT COSTS
The Company accounts for product development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," under which certain software development costs incurred
subsequent to the establishment of technological feasibility are capitalized and
amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. To date,
completion of a working model of the Company's products and general release have
substantially coincided. As a result, the Company has not capitalized any
software development costs since such costs have not been significant. Through
December 31, 2000, all development costs have been charged to product
development expense in the accompanying consolidated statements of operations.
(W) FOREIGN CURRENCY TRANSLATION
Assets and liabilities in foreign functional currencies are translated at
the exchange rate as of the balance sheet date. Translation adjustments are
recorded as a separate component of stockholders' equity (deficit). Revenues,
costs and expenses denominated in foreign functional currencies are translated
at the weighted average exchange rate for the period. The Company's translation
adjustment was insignificant for the year ended December 31, 2000.
(X) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and, as amended by SFAS No. 137, was adopted by
the Company in the fourth quarter of 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. The
adoption of this statement did not impact the Company's historical financial
statements as it currently does not use derivative instruments.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"), which summarizes certain
of the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company's revenue recognition
policies are consistent with SAB No. 101; accordingly, its implementation did
not have a significant effect on the Company's results of operations.
In March 2000, the EITF reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs," which provided guidance on when to capitalize
versus expense costs incurred to develop a web site. The consensus is effective
for web site development costs in quarters beginning after June 30, 2000. The
Company has applied the guidance as described by Issue 00-2 for the year ended
December 31, 2000, noting no material impact on its results of operations.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44") provides guidance for applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees." With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The adoption of FIN No. 44 on July 1, 2000 did not
have a material effect on the Company's results of operations.
52
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(2) ACQUISITIONS
On October 12, 2000, the Company acquired HumanClick Ltd., a private company
organized under the laws of the State of Israel ("HumanClick"). The functional
currency for HumanClick is the U.S. dollar. This transaction was accounted for
under the purchase method of accounting and, accordingly, the operating results
of HumanClick were included in the Company's consolidated results of operations
from the date of acquisition. In connection with the transaction, LivePerson
assumed HumanClick's outstanding stock options which remain outstanding as
options to purchase shares of LivePerson's common stock.
The purchase price was $9,656, which included the issuance of 4,238,405
shares of the Company's common stock valued at $9,143 and acquisition costs of
$241. Of the 4,238,405 shares issued, 1,564,298 are subject to a repurchase
option by the Company if two of the former shareholders of HumanClick are no
longer employed by HumanClick under certain circumstances prior to October 12,
2003. The price pursuant to which the Company may repurchase such shares is
equal to the lesser of the 30-day average price per share of the Company's
common stock prior to the termination of employment, and $7 per share. One-third
of the stock subject to the repurchase option shall be released from the
Company's purchase option on each of October 12, 2001, 2002 and 2003. In
addition, options to purchase shares of HumanClick's common stock were exchanged
for options to purchase approximately 262,000 shares of the Company's common
stock. The fair value of the options, amounting to $265, was included in the
purchase price. This amount excludes the intrinsic value of the unvested options
at the date of acquisition, amounting to $272, which was also included in the
purchase price; however, such amount was allocated to deferred compensation in
accordance with FIN No. 44 and is being amortized over the remaining vesting
periods.
Of the purchase price, $474 was allocated to net tangible assets. The
historical carrying amounts of such net tangible assets approximated their fair
values. The purchase price in excess of the fair value of the net tangible
liabilities assumed in the amount of $8,910 was allocated to goodwill and
intangible assets and is being amortized on a straight-line basis over an
expected period of benefit of three years.
The allocation of the purchase price in connection with the HumanClick
acquisition is as follows:
[Download Table]
Current assets, primarily receivables....................... $ 627
Property and equipment...................................... 95
Goodwill and other intangible assets........................ 8,910
Liabilities assumed, net.................................... (248)
Deferred compensation....................................... 272
------
$9,656
======
53
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(2) ACQUISITIONS (CONTINUED)
The following unaudited pro forma consolidated financial information gives
effect to the acquisition of HumanClick, as if the acquisition occurred on
June 24, 1999 (HumanClick's date of inception), by consolidating the results of
operations of HumanClick with the results of the Company for the years ended
December 31, 2000 and 1999. The unaudited pro forma consolidated financial
information is not necessarily indicative of the consolidated results that would
have occurred, nor is it necessarily indicative of results that may occur in the
future.
[Download Table]
DECEMBER 31,
------------------------
2000 1999
---- ----
Revenues.............................................. $ 6,279 $ 576
Net loss attributable to common stockholders.......... $ (65,012) $ (12,990)
Net loss per share-basic and diluted.................. $ (2.33) $ (1.41)
Weighted average basic and diluted shares
outstanding......................................... 27,856,813 9,221,317
54
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
[Download Table]
DECEMBER 31,
-------------------
2000 1999
-------- --------
Computer equipment and software............................ $11,528 $2,367
Furniture, equipment and building improvements............. 3,509 188
------- ------
15,037 2,555
Less accumulated depreciation.............................. 2,154 98
------- ------
Total.................................................... $12,883 $2,457
======= ======
ACCRUED EXPENSES
Accrued expenses consists of the following:
[Download Table]
DECEMBER 31,
-------------------
2000 1999
-------- --------
Professional services and consulting fees................... $ 244 $327
Sales commissions........................................... 426 68
Equipment lease payments.................................... 557 --
Employee stock purchase plan payable........................ 43 --
Payroll and related costs................................... 126 227
Other....................................................... 50 67
------ ----
Total..................................................... $1,446 $689
====== ====
55
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) CAPITALIZATION
The Company had 30,000,000 shares of common stock authorized and 9,000,000
shares of preferred stock authorized as of December 31, 1999. On January 27,
2000, the Company increased the number of its authorized shares of common stock
to 35,000,000 and the number of its authorized shares of preferred stock to
12,274,852. On March 8, 2000, the Company increased the number of its authorized
shares of common stock to 100,000,000. Upon the closing of the initial public
offering of the Company's common stock (the "IPO") on April 12, 2000, the
Company filed an amended and restated certificate of incorporation that
authorized 5,000,000 shares of undesignated preferred stock.
In January 1999, the Company issued 2,500,000 shares of series A convertible
preferred stock ("Series A") in a private placement and warrants to purchase up
to 468,749 shares of common stock at an offering price of $1.20 per Series A
share and $0.001 per warrant share. Total proceeds amounted to $2,902. The
warrants are exercisable at a price of $1.60 per common share and have a term of
5 years. As part of the Series A private placement, a $100 note payable,
originally issued in 1998, was converted into 83,333 shares of Series A
preferred stock.
In January 1999, the Company issued an additional 41,667 shares of Series A
to a financial advisor in exchange for services. The Company recorded
compensation expense of $50 in connection with the issuance of the shares at
$1.20 per share.
In May 1999, the Company issued 1,142,857 shares of series B convertible
preferred stock ("Series B") in a private placement and warrants to purchase up
to 250,000 shares of common stock at an offering price of $1.40 per Series B
share and $0.001 per warrant share. The warrants are exercisable at a price of
$1.60 per common share and have a term of 5 years. Total proceeds, net of
offering costs of $15, amounted to $1,586.
In July 1999, the Company issued 5,132,433 shares of series C redeemable
convertible preferred stock ("Series C") in a private placement at $3.70 per
share. Total proceeds, net of offering costs of $10, amounted to $18,980. Such
stock was redeemable at $3.70 per share at the option of the holder.
Thirty-three percent of such shares were subject to mandatory redemption
beginning on July 19, 2004, an additional 17% on July 19, 2005 and the remaining
50% on July 19, 2006.
In January 2000, the Company issued an aggregate of 3,157,895 shares of
series D redeemable convertible preferred stock ("Series D") at $5.70 per share.
Total proceeds to the Company, net of offering costs of $100, amounted to
$17,900. Such stock was redeemable at $5.70 per share at the option of the
holder. The difference between the price of the Series D on an "as if" converted
to common stock basis of $3.80 and $11.70 (the fair value of the common stock on
the date of issuance), or $7.90, multiplied by the number of shares of Series D
on an "as if" converted to common stock basis represents the intrinsic value of
the beneficial conversion feature, which totaled $37,421. However, as the
intrinsic value of the beneficial conversion feature is greater than the $18,000
in gross proceeds received from the Series D issuance, the amount of the
discount attributed to the beneficial conversion feature is limited to the
$18,000 of gross proceeds received. The $18,000 beneficial conversion feature
was recorded in the quarter ended March 31, 2000 as a non-cash preferred stock
dividend because the Series D was, at the time it was issued, immediately
convertible at the option of the preferred stockholders. The $18,000 non-cash
dividend increased the Company's net loss attributable to common stockholders
for the year ended December 31, 2000 by the same amount.
56
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) CAPITALIZATION (CONTINUED)
On April 6, 2000, the SEC declared effective the Company's Registration
Statement on Form S-1. Pursuant to this Registration Statement, the Company
completed its initial public offering of 4,000,000 shares of its common stock at
an offering price of $8.00 per share. Net proceeds to the Company totaled
$28,101.
Upon the closing of the IPO on April 12, 2000, 2,541,667, 1,142,857,
5,132,433 and 3,157,895 shares of Series A, Series B, Series C and Series D
convertible preferred stock, respectively, representing all of the outstanding
shares of the convertible preferred stock on that date, automatically converted
at a ratio of two shares of preferred stock for three shares of common stock,
into an aggregate of 17,962,273 shares of common stock.
On October 12, 2000, the Company issued 4,238,405 shares of common stock in
connection with its acquisition of HumanClick (see note 2).
The Company issued common stock warrants in connection with the issuance of
the Series A and the Series B. The details of such warrants issued are as
follows:
[Download Table]
EXERCISE PRICE
FINANCING NUMBER OF PER COMMON
DATE OF ISSUE ROUND WARRANTS SHARE TERM
------------- --------- --------- -------------- --------
January 1999.................... Series A 468,749 $1.60 5 years
May 1999........................ Series B 250,000 $1.60 5 years
Of these, during the year ended December 31, 2000, warrants to purchase
261,719 shares of common stock at an exercise price of $1.60 per share were
exercised.
57
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS
During 1998, the Company established the Stock Option and Restricted Stock
Purchase Plan (the "1998 Plan"). Under the 1998 Plan, the Board of Directors may
issue incentive stock options or nonqualified stock options to purchase up to
5,850,000 shares of common stock.
The Company established a successor to the 1998 Plan, the 2000 Stock
Incentive Plan (the "2000 Plan"). Under the 2000 Plan, the options which had
been outstanding under the 1998 Plan were incorporated into the 2000 Plan and
the Company increased the number of shares available for issuance under the plan
by approximately 4,150,000, thereby reserving for issuance 10,000,000 shares of
common stock in the aggregate. Options to acquire common stock granted
thereunder will have 10 year terms.
In March 2000, the Company adopted the 2000 Employee Stock Purchase Plan
with 450,000 shares of common stock initially reserved for issuance of which
25,951 shares were issued in 2000.
A summary of the Company's stock option activity and weighted average
exercise prices is as follows:
[Enlarge/Download Table]
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
Options outstanding at December 31, 1997.................... -- --
Options granted............................................. 197,100 $0.67
Options cancelled........................................... -- --
---------- -----
Options outstanding at December 31, 1998.................... 197,100 $0.67
Options granted............................................. 3,496,245 $1.37
Options cancelled........................................... (81,000) $0.94
---------- -----
Options outstanding at December 31, 1999.................... 3,612,345 $1.33
Options granted/assumed..................................... 5,730,727 $3.62
Options exercised........................................... (334,265) $1.25
Options cancelled........................................... (1,339,255) $3.00
---------- -----
Options outstanding at December 31, 2000.................... 7,669,553 $2.76
========== =====
Options exercisable at December 31, 1999.................... 479,960 $1.09
========== =====
Options exercisable at December 31, 2000.................... 1,932,288 $2.26
========== =====
The Company applies APB No. 25 and related interpretations in accounting for
its stock option grants to employees. Accordingly, except as mentioned below, no
compensation expense has been recognized relating to these stock option grants.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant date for awards consistent with the method
of SFAS No. 123, the Company's net loss attributable to common stockholders for
each year is
58
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
presented below. The Company did not have any employee stock options outstanding
prior to January 1, 1998.
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net loss attributable to common stockholders:
As reported............................................ $(61,334) $ (9,777) $ (20)
======== ======== ======
Pro forma.............................................. $(62,608) $(12,259) $ (28)
======== ======== ======
Basic and diluted net loss per common share:
As reported............................................ $ (2.50) $ (1.38) $ 0.00
======== ======== ======
Pro forma.............................................. $ (2.55) $ (1.73) $(0.01)
======== ======== ======
The resulting effect on the pro forma net loss attributable to common
stockholders disclosed for the years ended December 31, 2000, 1999 and 1998 is
not likely to be representative of the effects on the net loss on a pro forma
basis in future years, because the pro forma results include the impact of only
one period of grants and related vesting, while subsequent years will include
additional grants and vesting.
The per share weighted average fair value of stock options granted during
2000, 1999 and 1998, was $5.51, $1.40 and $0.26, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 2000, 1999 and 1998: dividend yield of zero percent for all years,
risk-free interest rates of 6.3%, 6.0% and 5.4%, respectively and expected life
of 5 years for all years. As permitted under the provisions of SFAS No. 123 and
based on the historical lack of a public market for the Company's stock, no
factor for volatility has been reflected in the option pricing calculation for
1999 and 1998. During 2000, the Company used a volatility factor of 122.3%.
During December 1998, the Company granted options to purchase 93,750 shares
of common stock at an exercise price of $0.67 per share, the then fair market
value of the Company's common stock, to a consultant for services performed.
These options are exercisable for a period of 5 years. The Company recorded an
expense of $25 in connection with the issuance of the fully vested options using
a Black-Scholes pricing model using a volatility factor of 40%.
During April 1999, the Company granted options to purchase an aggregate of
64,260 shares of common stock at an exercise price of $0.67 per share, to four
consultants for services performed. These options are exercisable for a period
of 10 years. The Company recorded an expense of $32 in connection with the
issuance of the fully vested options using a Black-Scholes pricing model using a
volatility factor of 50% and a deemed fair value of $1.08 per share.
During May 1999, the Company issued an option to purchase 94,500 shares of
common stock at an exercise price of $1.60 per share to a client in connection
with an agreement to provide the LivePerson service to the client for two years.
The Company is receiving subscription revenue from the client over
59
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
the two-year period based on the number of seats the client is using. The
original terms of the option provided that it would vest in or before May 2001,
if revenue generated by the client met certain targets. The option had no
minimum revenue guarantee. The option was exercisable for a period of 3 years
from the date of grant. The Company accounted for this option in accordance with
Emerging Issues Task Force Abstract No. 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." Pursuant to EITF 96-18, the
Company valued the option at each balance sheet date using a Black-Scholes
pricing model using a volatility factor of 50%, a $1.60 per share exercise price
and the then fair value of the Company's common stock as of each balance sheet
date. The value ascribed to this option was adjusted at each balance sheet date
to bring the total ascribed value of the option up to the then current fair
value. This cost was amortized ratably over the two-year service agreement, as
the Company believed that the achievement of the revenue targets was probable.
The $566 value ascribed to the option reflects the market value at December 31,
1999. As a result, the Company amortized $86 of the deferred cost as of
December 31, 1999, of which $24 was offset against the $27 of revenue recognized
from the client. The remaining $62 constituted sales and marketing expense, all
of which was recorded in the fourth quarter of 1999 and is included in non-cash
compensation expense in the Company's 1999 statement of operations.
In February 2000, the Company amended the option agreement whereby the
option became fully vested and immediately exercisable. The client exercised the
option in May 2000. However, the client is precluded from selling the underlying
common stock until the earlier of five years or, if certain revenue targets are
met, May 19, 2001. The value ascribed to the option at the time the option
agreement was amended, using a Black-Scholes pricing model, was $1,014, which is
being ratably amortized over the remaining service period of approximately
fifteen months because the vesting of the options does not affect the Company's
obligation under the service agreement. In addition, the ratable amortization of
the remaining deferred cost of $1,014 is being recorded as a reduction of the
revenue recognized from the client, with any excess amortization recorded on a
quarterly basis as sales and marketing expense which is included in non-cash
compensation expense in the Company's statement of operations. The Company
amortized $723 of the deferred cost during the year ended December 31, 2000, of
which $59 was offset against the $59 of revenue recognized from the client. The
remaining $664 of sales and marketing expense is included in non-cash
compensation expense in the Company's 2000 statement of operations.
During 2000 and 1999, the Company granted or assumed stock options to
purchase 5,730,727 and 3,496,245 shares of common stock at a weighted average
exercise price of $3.62 and $1.37, per share, respectively, certain of which
were granted at less than the deemed fair value of the common stock at the date
of grant. For the years ended December 31, 2000 and 1999, the Company recorded
deferred compensation of $18,241 and $6,233, respectively, in connection with
these options. The aggregate amount of deferred compensation which was recorded
in connection with the grant of options and subsequently reversed against
paid-in capital in connection with the forfeiture of those options associated
with employees who left the Company during the year ended December 31, 2000,
approximated $5,370. In 2000, the Company also recorded $272 of deferred
compensation relating to the intrinsic value of unvested options assumed by the
Company in connection with the HumanClick
60
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
acquisition. These amounts are presented as deferred compensation within the
consolidated financial statements and are being amortized over the vesting
period, typically three to four years, of the applicable options. The Company
amortized $11,915 and $1,589 for the years ended December 31, 2000 and 1999,
respectively, net of forfeitures or cancellations of $2,023 in connection with
employees who left the Company in 2000. The Company expects to amortize the
following amounts of deferred compensation relating to options granted in 1999
and 2000 as follows: 2001-$3,577; 2002-$1,789; and 2003-$506.
The Company recorded an additional $666 of non-cash compensation expense
during 2000 in connection with the vesting of options pursuant to employee
severance agreements.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
$0.00-$ 1.00 1,573,640 6.16 $0.69 808,565 $0.69
$1.01-$ 2.00 3,335,934 8.80 $1.91 631,436 1.90
$2.01-$ 5.00 1,652,782 9.21 $2.99 216,563 3.53
$5.01-$11.00 1,107,197 9.35 $7.90 275,725 6.71
--------- ----- --------- -----
7,669,553 $2.76 1,932,288 $2.26
========= ===== ========= =====
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
$0.67 1,241,010 8.95 $0.67 329,960 $0.67
$0.80 588,960 4.24 $0.80 -- --
$1.60 94,500 2.38 $1.60 -- --
$2.00 1,687,875 9.79 $2.00 150,000 2.00
--------- ----- ------- -----
3,612,345 $1.33 479,960 $1.09
========= ===== ======= =====
61
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(6) COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under agreements
accounted for as operating leases. These leases generally require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases for the years ending December 31, 2000, 1999 and 1998 were
approximately $2,988, $311 and $26 respectively.
Future minimum lease payments under operating leases (with an initial or
remaining lease terms in excess of one year) are as follows:
[Download Table]
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
2001........................................................ $ 4,591
2002........................................................ 4,382
2003........................................................ 3,281
2004........................................................ 3,373
2005........................................................ 3,118
Thereafter.................................................. 15,993
-------
Total minimum lease payments.............................. $34,738
=======
In the first quarter of 2000, the Company entered into three additional
leases for office space. The lease for the Company's San Francisco office space,
entered into in February 2000, provides for annual aggregate payments of $329.
The security deposit for this lease is approximately $24. The Company also
entered into two subleases in New York City which provided for annual aggregate
payments of $238 and $182, respectively. These subleases expired in
November 2000. In March 2000, the Company entered into a lease for two floors at
a location in New York City. The lease with respect to one floor commenced in
April 2000, at a rent of approximately $1,400 per year in the first three years,
$1,500 per year in years four through seven and $1,600 per year in years eight
through ten. The related security deposit is $2,000 for the first three years,
$1,300 for years four through seven and $670 for years eight through ten. At the
Company's option, the Company provided the security deposit through a letter of
credit (see note 1). The lease term relating to the other floor commences in
March 2001, at a rent of approximately $1,500 per year in the first three years,
$1,600 per year in years four through seven and $1,700 per year in years eight
through ten. The related security deposit will be $2,200 for the first three
years, $1,500 for years four through seven and $747 for years eight through ten.
During July 2000, the Company entered into an eighteen month lease for certain
computer equipment requiring monthly payments of approximately $69.
In October 2000, the Company entered into a sale-leaseback agreement whereby
certain computer equipment was sold and leased back by the Company. The Company
received proceeds of $2,700 from the sale. The gain on the sale of $522 was
deferred and will be recognized on a straight-line basis over the initial term
of the lease. Under the terms of the agreement, the Company will make monthly
rental payments of approximately $118 over a two-year lease period. At the
expiration of the initial lease term, the Company will have the option of
purchasing any and or all units of equipment for an amount equal to the fair
market value of such units as of the end of the applicable term. The Company
also has the option of entering into a mutually agreeable renewal agreement. The
lease-back is being accounted for as an operating lease.
62
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(7) VALUATION AND QUALIFYING ACCOUNTS
[Enlarge/Download Table]
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS/ END OF
PERIOD EXPENSES WRITE-OFFS PERIOD
------------ ---------- ----------- ----------
For the year ended December 31, 1998:
Allowance for doubtful accounts................. $-- $ 15 $ -- $ 15
=== ==== ==== ====
For the year ended December 31, 1999:
Allowance for doubtful accounts................. $15 $ 85 $(15) $ 85
=== ==== ==== ====
For the year ended December 31, 2000:
Allowance for doubtful accounts................. $85 $527 $(35) $577
=== ==== ==== ====
(8) INCOME TAXES
The Company has adopted the cash method of accounting for income tax
purposes. There is no provision for federal, state or local income taxes for any
periods presented, since the Company has incurred losses since inception. The
Company has recorded a full valuation allowance against its deferred tax assets
since management believes that, after considering all of the available objective
evidence, it is not more likely than not that these assets will be realized.
At December 31, 2000 and 1999, the Company had approximately $34,400 and
$5,600, respectively, of federal net operating loss ("NOL") carryforwards
available to offset future taxable income. Such carryforwards expire in various
years through 2020. Under Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), the utilization of net operating loss carryforwards may be
limited under the change in stock ownership rules of the Code. The U.S. Tax
Reform Act of 1986 contains provisions that limit the NOL carryforwards
available to be used in the future to offset income upon the occurrence of
certain events, including a significant change of ownership. Management has not
determined whether a Section 382 change has occurred.
63
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(8) INCOME TAXES (CONTINUED)
The effects of temporary differences and tax loss carryforwards that give
rise to significant portions of federal deferred tax assets and deferred tax
liabilities at December 31, 2000 and 1999 are presented below.
[Download Table]
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carry forwards...................... $ 14,808 $ 2,177
Accounts payable and accrued expenses.................. 1,124 1,029
Deferred revenue....................................... 591 69
Non-cash compensation.................................. 6,634 290
Plant and equipment.................................... 81 --
Goodwill amortization.................................. 217 --
Other.................................................. 3 --
-------- -------
Gross deferred tax assets............................ 23,458 3,565
Less: valuation allowance............................ (22,654) (3,132)
-------- -------
Net deferred tax assets.............................. 804 433
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation......................................... -- (9)
Accounts receivable.................................... (502) (188)
Prepaid expenses....................................... (302) (236)
-------- -------
Gross deferred tax liabilities....................... (804) (433)
-------- -------
Net deferred taxes....................................... $ -- $ --
======== =======
(9) SUBSEQUENT EVENTS (UNAUDITED)
In the first quarter of 2001, the Company announced restructuring
initiatives to streamline its operations, including the consolidation of its two
San Francisco Bay area offices and several initiatives to reduce its spending
requirements. The restructuring is expected to result in a reduction of the
Company's workforce by approximately 90 people by the end of the first quarter
2001. LivePerson expects to record a charge for severance and other related
expenses due to the restructuring of approximately $3.0 million in the first
quarter of 2001, all of which is expected to be paid by the end of 2001.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
64
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of LivePerson, and their ages and
positions as of March 15, 2001, are:
[Enlarge/Download Table]
NAME AGE POSITION
---- -------- --------
Robert P. LoCascio........................ 32 Chief Executive Officer and Chairman of
the Board
Timothy E. Bixby.......................... 36 President, Chief Financial Officer,
Secretary and Director
Richard L. Fields......................... 44 Director
Wycliffe K. Grousbeck..................... 39 Director
Kevin C. Lavan............................ 48 Director
Robert W. Matschullat..................... 53 Director
Edward G. Sim............................. 30 Director
ROBERT P. LOCASCIO has been our Chief Executive Officer and Chairman of our
board of directors since our inception in November 1995. In addition,
Mr. LoCascio was our President from November 1995 until January 2001.
Mr. LoCascio founded our company as Sybarite Interactive Inc., which developed a
community-based web software platform known as TOWN. Before founding Sybarite
Interactive, through November 1995, Mr. LoCascio was the founder and Chief
Executive Officer of Sybarite Media Inc. (known as IKON), a developer of
interactive public kiosks that integrated interactive video features with
advertising and commerce capabilities. Mr. LoCascio received a B.B.A. from
Loyola College.
TIMOTHY E. BIXBY has been our Chief Financial Officer since June 1999, our
Secretary and a director since October 1999 and our President since March 2001.
In addition, Mr. Bixby was an Executive Vice President from January 2000 until
March 2001. From March 1999 until May 1999, Mr. Bixby was a private investor.
From January 1994 until February 1999, Mr. Bixby was Vice President of Finance
for Universal Music & Video Distribution Inc., a manufacturer and distributor of
recorded music and video products, where he was responsible for internal
financial operations, third party distribution deals and strategic business
development. From October 1992 through January 1994, Mr. Bixby was Associate
Director, Business Development, with the Universal Music Group. Prior to that,
Mr. Bixby spent three years in Credit Suisse First Boston's mergers and
acquisitions group as a financial analyst. Mr. Bixby received a M.B.A. from
Harvard University and an A.B. from Dartmouth College.
RICHARD L. FIELDS has been a director since July 1999. Mr. Fields is a
Managing Director of the investment banking firm Allen & Company Incorporated,
where he has been employed since 1986. Mr. Fields is a director of VoiceStream
Wireless Corporation and the Telecommunications Development Fund. Mr. Fields
received a J.D. from Harvard University, a M.B.A. from Stanford University and a
B.S. from the Massachusetts Institute of Technology.
WYCLIFFE K. GROUSBECK has been a director since July 1999. Mr. Grousbeck has
been a General Partner of Highland Capital Partners, Inc., a venture capital
firm, since August 1996 and joined as an Associate in May 1995. Mr. Grousbeck is
a director of Atomica Corporation, EXACT Sciences Corporation, NuGenesis
Technologies Corporation and PLmarket, Inc. Mr. Grousbeck received a M.B.A. from
Stanford University, a J.D. from the University of Michigan and an A.B. from
Princeton University.
65
KEVIN C. LAVAN has been a director since January 2000. Since October 2000,
Mr. Lavan has been serving as an independent consultant to marketing services
organizations. From March 1999 until October 2000, Mr. Lavan was an Executive
Vice President of Impiric, the direct marketing and customer relationship
marketing division of Young & Rubicam Inc. From February 1997 to March 1999,
Mr. Lavan was Senior Vice President of Finance at Young & Rubicam. From
January 1995 to February 1997, Mr. Lavan held various positions at Viacom Inc.,
including Controller, and Chief Financial Officer for Viacom's subsidiary, MTV
Networks. Mr. Lavan received a B.S. from Manhattan College.
ROBERT W. MATSCHULLAT has been a director since March 2000. Since
June 2000, Mr. Matschullat has been a private investor. From October 1995
through May 2000, Mr. Matschullat was Vice Chairman of the board of directors of
The Seagram Company Ltd., and also served as Chief Financial Officer of Seagram
from October 1995 to December 1999. Previously, he was Managing Director and
Head of Worldwide Investment Banking for Morgan Stanley & Co., Inc. and a
director of Morgan Stanley Group, Inc., from 1991 through June 1995.
Mr. Matschullat is a director of The Clorox Company. Mr. Matschullat received a
M.B.A. and a B.A. from Stanford University.
EDWARD G. SIM has been a director since January 1999. Since October 1999,
Mr. Sim has been a Managing Director of Wit SoundView Ventures Corp. Since
April 1998, Mr. Sim has also been a member of DT Advisors LLC, the managing
entity of the Dawntreader Funds group of Wit SoundView Ventures. From
April 1996 to April 1998, Mr. Sim was an Associate with Prospect Street
Ventures, a New York venture capital firm, and from May 1994 to April 1996, he
was a member of the Structured Derivatives Group at J.P. Morgan Investment
Management Inc. Mr. Sim is a director of Atomica Corporation,
Expertcity.com, inc., MaterialNet, Inc., Metapa Inc. and Moreover.com, Inc.
Mr. Sim received an A.B. from Harvard University.
COMPOSITION OF THE BOARD OF DIRECTORS
Our board of directors is divided into three classes, each of whose members
serve for a staggered three-year term. Upon the expiration of the term of a
class of directors, directors in that class are elected for three-year terms at
the annual meeting of stockholders in the year in which their term expires. Our
board of directors has resolved that Mr. Fields and Mr. Sim are Class I
Directors whose terms expire at the 2001 annual meeting of stockholders.
Mr. Grousbeck and Mr. Bixby are Class II Directors whose terms expire at the
2002 annual meeting of stockholders. Messrs. Lavan, Matschullat and LoCascio are
Class III Directors whose terms expire at the 2003 annual meeting of
stockholders. With respect to each class, a director's term will be subject to
the election and qualification of their successors, or their earlier death,
resignation or removal. Our existing directors were elected or appointed
pursuant to the terms of an agreement among our stockholders. This agreement
terminated upon the initial public offering of our common stock.
BOARD COMMITTEES
The Audit Committee of our board of directors reviews, acts on and reports
to our board of directors with respect to various auditing and accounting
matters, including the recommendations of our independent auditors, the scope of
the annual audits, the fees to be paid to the auditors, the performance of our
auditors and our accounting practices. The members of the Audit Committee are
Mr. Fields, Mr. Lavan and Mr. Sim.
The Compensation Committee of our board of directors recommends, reviews and
oversees the salaries, benefits and stock option plans for our employees,
consultants, directors and other individuals whom we compensate. The
Compensation Committee also administers our compensation plans. The members of
the Compensation Committee are Mr. Fields, Mr. Grousbeck and Mr. Lavan.
66
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of our board of directors, our executive officers and persons
who hold more than ten percent of our outstanding common stock are subject to
the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934, which requires them to file reports with respect to their ownership of our
common stock and their transactions in such common stock. Based upon a review of
(i) the copies of Section 16(a) reports which LivePerson has received from such
persons or entities for transactions in our common stock and their common stock
holdings for the fiscal year ended December 31, 2000, and (ii) the written
representations received from one or more of such persons or entities that no
annual Form 5 reports were required to be filed by them for the fiscal year
ended December 31, 2000, LivePerson believes that all reporting requirements
under Section 16(a) for such fiscal year were met in a timely manner by its
directors, executive officers and greater than ten percent beneficial owners.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for all services
rendered to us in all capacities in the fiscal years ended December 31, 2000 and
1999 by our Chief Executive Officer and our four most highly compensated
executive officers other than our Chief Executive Officer, who served as
executive officers at the end of 2000 and who earned more than $100,000 in 2000,
or who would be listed below under such criteria but for the fact that that the
individual was not serving as an executive officer at the end of 2000. The Chief
Executive Officer and our four most highly compensated executive officers other
than the Chief Executive Officer listed below are referred to as the "Named
Executive Officers" in this Item 11 and in Item 12.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
LONG-TERM OTHER
COMPENSATION AWARDS COMPENSATION
ANNUAL COMPENSATION ---------------------- ------------
---------------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) UNDERLYING OPTIONS (#) COMMISSIONS
--------------------------- -------- ---------- --------- ---------------------- ------------
Robert P. LoCascio......................... 2000 185,650 50,000 -- --
Chief Executive Officer 1999 125,000 50,000 -- --
Dean Margolis(1)........................... 2000 159,164 -- 600,000 --
Chief Operating Officer 1999 -- -- -- --
Timothy E. Bixby........................... 2000 172,740 35,000 300,000 --
Chief Financial Officer 1999 73,231 -- 300,000 --
Scott E. Cohen(2).......................... 2000 185,000 50,000 240,000 278,638
Executive Vice President, Worldwide 1999 138,250 -- 588,960 --
Sales and Strategic Alliances
James L. Reagan(3)......................... 2000 165,000 60,000 400,000 --
Chief Technology Officer 1999 -- -- -- --
--------------------------
(1) Mr. Margolis joined the Company in January 2000 and left the Company in
January 2001.
(2) Mr. Cohen joined the Company in March 1999 and left the Company in
February 2001.
(3) Mr. Reagan joined the Company in January 2000 and left the Company in
November 2000.
67
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 2000
The following table sets forth information regarding exercisable and
unexercisable stock options granted to each of the Named Executive Officers in
the last fiscal year. No stock appreciation rights were granted to the Named
Executive Officers during the fiscal year ended December 31, 2000. Potential
realizable values are computed by (1) multiplying the number of shares of common
stock subject to a given option by the market price or assumed fair market value
on the date of grant, (2) assuming that the aggregate stock value derived from
that calculation compounds annually for the entire term of the option and
(3) subtracting from that result the aggregate option exercise price.
[Enlarge/Download Table]
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
-------------------------------------------------------------------- ----------------------------------
NUMBER OF PERCENT OF TOTAL MARKET PRICE
SECURITIES OPTIONS EXERCISE ON DATE
UNDERLYING GRANTED TO OR BASE OF GRANT
OPTIONS EMPLOYEES IN PRICE ($/SH) EXPIRATION 0% 5% 10%
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) (1) DATE ($) ($) ($)
---- ---------- ---------------- -------- ------------ ---------- --------- --------- ----------
Robert P. LoCascio....... -- -- -- -- -- -- -- --
Dean Margolis(3)......... 510,000 9.0 3.33 13.00 1/28/10 4,931,700 9,101,271 15,498,213
90,000 1.6 1.9375 1.9375 10/20/10 -- 109,664 277,909
Timothy E. Bixby(4)...... 75,000 1.3 3.33 13.00 1/28/10 725,250 1,338,422 2,279,149
225,000 4.0 1.9375 1.9375 10/20/10 -- 274,159 694,772
Scott E. Cohen(5)........ 240,000 4.2 6.67 13.00 3/7/10 1,519,200 3,481,351 6,491,676
James L. Reagan(6)....... 300,000 5.3 2.00 10.65 1/10/10 2,595,000 4,604,318 7,687,007
100,000 1.8 1.9375 1.9375 10/20/10 -- 121,848 308,788
------------------------------
(1) Each price per share listed in this column for grants before our initial
public offering of common stock on April 7, 2000 is the deemed fair market
value of the common stock on the date of grant. From January 1, 2000 to
January 27, 2000, the deemed fair market value of our common stock was
$10.65 per share. From January 28, 2000 to April 6, 2000, the deemed fair
market value of our common stock was $13.00 per share.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 0%, 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
These amounts represent assumed rates of appreciation in the value of our
common stock from the market price or assumed fair market value on the date
of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of our common stock. The amounts reflected in the
table may not necessarily be achieved. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risk Factors
That May Affect Future Results" elsewhere in this Report on Form 10-K.
(3) Mr. Margolis left the Company in January 2001. Twenty-five percent of
Mr. Margolis's option to purchase up to 510,000 shares was vested at the
date of his resignation and pursuant to the terms of his employment
agreement, this 25% and an additional 25%, which will continue to vest under
the option's original vesting schedule, will remain exercisable until the
option's original expiration date. One-twelfth of Mr. Margolis's option to
purchase up to 90,000 shares was vested at the date of his resignation and
pursuant to the terms of his employment agreement, this 8.33% and an
additional 16.66%, which will continue to vest under the option's original
vesting schedule, will remain exercisable until the option's original
expiration date.
(4) Twenty-five percent of Mr. Bixby's option to purchase up to 75,000 shares
vested on July 1, 2000 and the remainder will vest in three equal
installments on each anniversary thereof. One-twelfth of Mr. Bixby's option
to purchase up to 225,000 shares vested on January 1, 2001 and the remainder
will vest in 11 equal installments on a quarterly basis thereafter.
68
(5) Mr. Cohen left the Company in February 2001. Mr. Cohen's option to purchase
up to 240,000 shares was completely exercisable at the date of his departure
and will remain exercisable until its original expiration date.
(6) Mr. Reagan left the Company in November 2000. Pursuant to the terms of
Mr. Reagan's employment agreement, 25% of each of his options to purchase up
to 300,000 shares and 100,000 shares will continue to vest under the
options' original vesting schedules and will remain exercisable until the
options' original expiration dates.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR
ENDED DECEMBER 31, 2000 AND YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
options held at December 31, 2000 by each of the Named Executive Officers. No
options were exercised during fiscal 2000 by any of the Named Executive
Officers. The value of the unexercised in-the-money options at December 31, 2000
is based on the market value of our common stock at December 31, 2000, less the
exercise price of the option, multiplied by the number of shares underlying the
option.
[Enlarge/Download Table]
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2000 (#) AT DECEMBER 31, 2000 ($)(1)
--------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Robert P. LoCascio...................... -- -- -- --
Dean Margolis........................... 127,500 472,500 -- --
Timothy E. Bixby........................ 93,750 506,250 19,870 59,611
Scott E. Cohen.......................... 534,480 294,480 77,301 77,301
James L. Reagan......................... -- -- -- --
------------------------
(1) The last quoted bid price of our common stock on the Nasdaq National Market
on the last trading day of the fiscal year ended December 31, 2000 was
$1.0625 per share.
DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will not
receive a fee for attendance in person at meetings of the board of directors or
committees of the board of directors, but they will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with attendance at
meetings. Non-employee directors will be granted options to purchase 15,000
shares of our common stock upon their election to the board of directors. In
addition, non-employee directors will be granted options to purchase 5,000
shares of our common stock on the date of each annual meeting of stockholders.
At the completion of our initial public offering of common stock in April 2000,
we granted options to purchase 15,000 shares of our common stock to each of
Messrs. Fields, Grousbeck, Lavan and Sim, at an exercise price of $8.00 per
share (equal to the price of our common stock in the offering), which options
vest one year from the date of the grant. In addition, at the completion of the
initial public offering, we granted an option to purchase 30,000 shares of our
common stock to Mr. Matschullat at an exercise price of $8.00 per share, 15,000
of which vest one year from the date of grant and 15,000 of which will vest in
equal installments over the next three years.
EMPLOYMENT AGREEMENTS
Robert P. LoCascio, our Chief Executive Officer, is employed pursuant to an
employment agreement entered into as of January 1, 1999. After its initial term,
which expires on January 1, 2002, our agreement with Mr. LoCascio will extend
automatically for one-year terms on each of January 1, 2002 and January 1, 2003,
unless either we or Mr. LoCascio gives notice not to extend the term of the
agreement. Pursuant to the agreement, Mr. LoCascio is entitled to receive an
annual base salary of not
69
less than $125,000, plus an annual discretionary bonus of up to $50,000,
determined by our board based upon achievement of performance objectives. Our
board raised Mr. LoCascio's annual salary to $185,000, effective April 2000. If
Mr. LoCascio is terminated by us without cause or following a material change or
diminution in his duties, a reduction in his salary or bonus, or if we are sold
or following a change in control of our company, or if we relocate him to a
location outside the New York metropolitan area, we must pay him an amount equal
to the amount of his salary for the 12 months following the date of termination,
and the pro rata portion of the bonus he would have been entitled to receive for
the fiscal year in which the termination occurred. These amounts are payable in
three monthly installments beginning 30 days after his termination. Pursuant to
the agreement, for a period of one year from the date of termination of
Mr. LoCascio's employment, he may not directly or indirectly compete with us,
including, but not limited to, being employed by any business which competes
with us, or otherwise acting in a manner intended to advance an interest of a
competitor of ours in a way that will or may injure an interest of ours.
Timothy E. Bixby, our President and Chief Financial Officer, is employed
pursuant to an employment agreement entered into as of June 23, 1999, which
shall continue until it is terminated by either party. Pursuant to the
agreement, Mr. Bixby receives an annual base salary of not less than $140,000
and an annual discretionary bonus. Our board raised Mr. Bixby's annual salary to
$185,000, effective April 2000. Mr. Bixby is also eligible to receive a
long-term incentive award determined by our board consisting of options to
purchase common stock, with the initial award consisting of options to purchase
up to 202,500 shares of common stock at a purchase price of $0.67 per share. If
Mr. Bixby is terminated following a change in control of our company or if he
terminates his employment with us following a reduction in his salary, a
material change or diminution in his duties or if Robert LoCascio is no longer
our President or Chief Executive Officer, all of his options then outstanding
will vest immediately, and we must pay him a lump-sum amount equal to his annual
salary, and the pro rata portion of the bonus he would have been entitled to
receive for the year in which the termination occurred. Pursuant to the
agreement, for a period of one year from the date of termination of Mr. Bixby's
employment, he may not directly or indirectly compete with us, including, but
not limited to, being employed by any business which competes with us, or
otherwise acting in a manner intended to advance an interest of a competitor of
ours in a way that will or may injure an interest of ours.
Our former Chief Operating Officer, Dean Margolis, was employed pursuant to
an employment agreement entered into on January 28, 2000. Mr. Margolis left
LivePerson in January 2001. We paid Mr. Margolis a fixed annual base salary of
not less than $175,000. Mr. Margolis was also eligible under the agreement to
receive a long-term incentive award, determined by our board, consisting of
options to purchase common stock, with the initial award consisting of options
to purchase up to 510,000 shares of common stock at a purchase price of $3.33
per share. Pursuant to the agreement, for a period of one year from the date of
termination of Mr. Margolis's employment, he may not directly or indirectly
compete with us including, but not limited to, being employed by any business
which competes with us, or otherwise acting in a manner intended to advance an
interest of a competitor of ours in a way that will or may injure an interest of
ours.
Our former Executive Vice President for Worldwide Sales and Strategic
Alliances, Scott E. Cohen, was employed pursuant to an employment agreement
entered into as of March 29, 1999. Mr. Cohen left LivePerson in February 2001.
The agreement's initial term expired on March 31, 2000 and was extended for one
year. Mr. Cohen received an annual base salary of not less than $185,000 and an
annual discretionary bonus. For the first year of the agreement's term, we
agreed to pay Mr. Cohen commissions on a quarterly basis in the amount of 10% of
the portion of our gross sales (consisting of revenues from sales invoiced by
us, net of tax and other surcharges payable by us and amounts rebated or
refunded) in excess of $1,000,000 during the first year of his employment. For
the second year of the agreement's term, we paid him commissions on a quarterly
basis in the amount of 10% of the first $1,000,000 of gross sales in excess of
the amount of gross sales in the first year, plus 7.5% of all gross
70
sales in excess of that amount. Additionally, we granted Mr. Cohen options to
purchase up to 588,960 shares of common stock at a purchase price of $0.80 each.
Pursuant to the agreement, for a period of one year from the date of termination
of Mr. Cohen's employment, he may not directly or indirectly compete with us,
including, but not limited to, being employed by any business which competes
with us, or otherwise acting in a manner intended to advance an interest of a
competitor of ours in a way that will or may injure an interest of ours.
Our former Chief Technology Officer, James L. Reagan, was employed pursuant
to an employment agreement entered into on January 3, 2000. Mr. Reagan left
LivePerson in November 2000. We paid Mr. Reagan a fixed annual base salary of
not less than $165,000, plus an annual discretionary bonus, of which $20,000 was
paid upon commencement of his employment. In addition, Mr. Reagan received a
starting bonus of $20,000. Mr. Reagan was also eligible under the agreement to
receive a long-term incentive award, determined by our board, consisting of
options to purchase common stock, with the initial award consisting of options
to purchase up to 300,000 shares of common stock at a purchase price of $2.00
per share. Pursuant to the agreement, for a period of one year from the date of
termination of Mr. Reagan's employment, he may not directly or indirectly
compete with us including, but not limited to, being employed by any business
which competes with us, or otherwise acting in a manner intended to advance an
interest of a competitor of ours in a way that will or may injure an interest of
ours.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors created its Compensation Committee on January 12,
2000. Prior to that time, the board of directors as a whole made decisions
relating to the compensation of our executive officers. The members of the
Compensation Committee since April 6, 2000 have been Mr. Fields, Mr. Grousbeck
and Mr. Lavan, none of whom has been an officer or employee of LivePerson at any
time since our inception. In addition, Mr. LoCascio and Mr. Sim served on the
Compensation Committee at different times prior to April 6, 2000. Mr. LoCascio
was our President and Chief Executive Officer for the entire fiscal year ended
December 31, 2000. No executive officer of LivePerson serves or has served
during the fiscal year ended December 31, 2000 as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of our board of directors or Compensation
Committee.
71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of March 15, 2001, by:
- each person or group of affiliated persons whom we know to beneficially
own five percent or more of our common stock;
- each of our directors;
- each of our Named Executive Officers; and
- each of our directors and executive officers as a group.
The following table gives effect to the shares of common stock issuable
within 60 days of March 15, 2001 upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares. Percentage of beneficial ownership is based on 33,969,381 shares of
common stock outstanding at March 15, 2001. Unless otherwise indicated, the
persons named in the table directly own the shares and have sole voting and sole
investment control with respect to all shares beneficially owned.
[Enlarge/Download Table]
NUMBER OF SHARES PERCENTAGE OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED STOCK OUTSTANDING
--------------------------------------------------------- ------------------ --------------------
5% STOCKHOLDERS
Highland Capital Partners IV Limited Partnership and
affiliates(1).......................................... 2,820,584 8.3%
Dell Computer Corporation(2)............................. 2,631,579 7.7%
DIRECTORS AND EXECUTIVE OFFICERS
Robert P. LoCascio(3).................................... 6,681,963 19.7%
Timothy E. Bixby(4)...................................... 182,875 *
Richard L. Fields(5)..................................... 444,971 1.3%
Wycliffe K. Grousbeck(1)................................. 2,953,742 8.7%
Kevin C. Lavan(6)........................................ 31,065 *
Robert W. Matschullat(7)................................. 35,000 *
Edward G. Sim(8)......................................... 60,342 *
Directors and Executive Officers as a group (7
persons)(9)............................................ 10,389,958 30.3%
------------------------
* Less than 1%.
(1) Based on the Schedule 13G filed with the Securities and Exchange Commission
on February 5, 2001 for the year ended December 31, 2000 by: Highland
Capital Partners IV Limited Partnership ("Highland Capital"); Highland
Management Partners IV LLC ("Highland Management"); and Robert F. Higgins,
Paul A. Maeder, Daniel J. Nova, Keith E. Benjamin and Wycliffe K. Grousbeck
(the managing members of Highland Management and together, the "Investing
Managing Members"). The address for Highland Capital, Highland Management
and each of the Investing Managing Members is c/o Highland Capital
Partners, Inc., Two International Place, Boston, Massachusetts 02110.
Highland Capital is the record owner of and beneficially owns 2,820,584
shares (the "Highland Shares") of common stock. Highland Capital has the
power to vote or direct the disposition of all of the Highland Shares. Such
power is exercised through Highland Management as the sole general partner
of Highland Capital. Highland Management, as the general partner of Highland
Capital, may be deemed to own the Highland Shares beneficially. The
Investing Managing Members have the power over all investment decisions of
Highland Management and therefore
72
may be deemed to share beneficial ownership of the Highland Shares by virtue
of their status as controlling persons of Highland Management. In addition,
Highland Entrepreneurs' Fund IV Limited Partnership ("HEF") is the record
owner of and beneficially owns 117,525 shares (the "HEF Shares") of common
stock. HEF has the power to vote or direct the disposition of all of the HEF
Shares. Such power is exercised through Highland Entrepreneurs' Fund IV LLC
(the "LLC") as the sole general partner of HEF. The LLC, as the general
partner of HEF, may be deemed to own the HEF Shares beneficially. The
Investing Managing Members have the power over all investment decisions of
the LLC and therefore may be deemed to share beneficial ownership of the HEF
Shares by virtue of their status as controlling persons of the LLC.
Each of Highland Capital and Highland Management has sole voting or
investment power over zero shares. Highland Capital, Highland Management and
each of the Investing Managing Members have shared voting and investment
power over the Highland Shares. In addition, each of the Investing Managing
Members have shared voting and investment power over the HEF Shares.
Highland Management disclaims beneficial ownership of the Highland Shares
and each of the Investing Managing Members disclaims beneficial ownership of
the Highland Shares and the HEF Shares.
Mr. Higgins is the record owner of, has sole voting and investment power
over, and beneficially owns 1,852 shares of common stock in addition to the
shares listed above. Mr. Maeder is the record owner of, has sole voting and
investment power over, and beneficially owns 1,791 shares of common stock in
addition to the shares listed above. Mr. Nova is the record owner of, has
sole voting and investment power over, and beneficially owns 1,720 shares of
common stock in addition to the shares listed above. Mr. Grousbeck is the
record owner of, has sole voting and investment power over, and beneficially
owns 633 shares of common stock and options to acquire 15,000 shares of
common stock exercisable within sixty days of March 15, 2001 in addition to
the shares listed above. Mr. Benjamin is the record owner of, has sole
voting and investment power over, and beneficially owns 212 shares of common
stock in addition to the shares listed above.
Each of Highland Capital and Highland Management may be deemed to own
beneficially 8.3% of the outstanding common stock. Each of the Investing
Managing Members may be deemed to own beneficially 8.7% of the outstanding
common stock.
(2) Based on the Schedule 13G filed with the Securities and Exchange Commission
on February 14, 2001 for the year ended December 31, 2000 by Dell Computer
Corporation ("Dell") and Dell USA L.P., an indirect wholly-owned subsidiary
of Dell ("Dell USA"). The address for Dell and Dell USA is One Dell Way,
Round Rock, Texas 78682. Consists of 2,631,579 shares of common stock held
by Dell USA. Dell and Dell USA may be deemed to share voting and investment
power over the shares.
(3) The address for Mr. LoCascio is c/o LivePerson, Inc., 330 West 34th Street,
10th Floor, New York, New York 10001.
(4) Includes 181,875 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 15, 2001.
(5) Includes 321,460 shares of common stock and 46,887 shares of common stock
issuable upon exercise of warrants held of record by Allen & Company
Incorporated ("Allen & Company") and beneficially owned by Mr. Fields, over
which he exercises sole voting and investment power. Mr. Fields is a
Managing Director of Allen & Company. Mr. Fields does not exercise voting or
investment power over, and disclaims beneficial ownership of, 1,119,177
shares and 148,426 shares issuable upon exercise of warrants which are held
of record by Allen & Company and beneficially owned by Allen & Company or
other of its officers and related persons. Also includes 15,000
73
shares of common stock issuable upon exercise of options exercisable within
60 days of March 15, 2001.
(6) Consists of 31,065 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 15, 2001.
(7) Includes 15,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 15, 2001.
(8) Includes 15,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 15, 2001.
(9) Includes 319,827 shares of common stock issuable upon exercise of options or
warrants exercisable within 60 days of March 15, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, we sold 1,754,386 shares of our series D redeemable
convertible preferred stock to, among other investors, an affiliate of Dell
Computer Corporation, with gross proceeds from Dell of $10.0 million. As of
March 15, 2001, Dell beneficially owned more than five percent of our common
stock.
74
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
Incorporated by reference to the index of consolidated financial
statements included in Item 8 to this Report on Form 10-K.
2. Financial Statement Schedules.
None.
3. Exhibits.
Incorporated by reference to the index of exhibits included in
paragraph (c) below.
(b) Reports on Form 8-K.
We filed a current report on Form 8-K (Items 2 and 7), dated October 12,
2000 and filed October 19, 2000, announcing our acquisition of HumanClick Ltd.
We filed an amendment to this report on Form 8-K (Items 2 and 7) on
November 13, 2000, to include the following financial statements:
Balance sheet of HumanClick Ltd. as of December 31, 1999 and the related
statements of loss, changes in shareholders' equity and cash flows for the
period from June 24, 1999 (date of incorporation) to December 31, 1999.
Unaudited condensed interim balance sheet of HumanClick Ltd. at
June 30, 2000 and the related unaudited condensed interim statements of
loss, changes in shareholders' equity and cash flows for the six months
ended June 30, 2000.
Unaudited pro forma condensed combined Statements of Operations for the
year ended December 31, 1999 and the six months ended June 30, 2000 and
unaudited pro forma condensed combined Balance Sheet as of June 30, 2000.
(c) Exhibits.
[Download Table]
NUMBER DESCRIPTION
------ -----------
2.1 Stock Purchase Agreement, dated as of October 12, 2000,
among Registrant, HumanClick Ltd. and the shareholders of
HumanClick Ltd. named in Schedule I thereto (incorporated
by reference to Exhibit 2 of the Registrant's Current
Report on Form 8-K, dated October 12, 2000 and filed
October 19, 2000)
3.1 Fourth Amended and Restated Certificate of Incorporation
3.2 Second Amended and Restated Bylaws, as amended
4.1 Specimen Common Stock certificate (incorporated by reference
to Exhibit 4.1 of the Registrant's Registration Statement
on Form S-1, as amended (Registration No. 333-96689)
("Registration No. 333-96689"))
4.2 Second Amended and Restated Registration Rights Agreement,
dated as of January 27, 2000, by and among Registrant, the
several persons and entities named on the signature pages
thereto as Investors, and Robert LoCascio (incorporated by
reference to Exhibit 4.2 of Registration No. 333-96689)
4.3 See Exhibits 3.1 and 3.2 for further provisions defining the
rights of holders of common stock of the Registrant
75
[Download Table]
NUMBER DESCRIPTION
------ -----------
10.1 Employment Agreement between Registrant and Robert P.
LoCascio, dated as of January 1, 1999 (incorporated by
reference to Exhibit 10.1 of Registration No. 333-96689)*
10.2 Employment Agreement between Registrant and Timothy E.
Bixby, dated as of June 23, 1999 (incorporated by
reference to Exhibit 10.3 of Registration No. 333-96689)*
10.3 2000 Stock Incentive Plan*
10.4 Employee Stock Purchase Plan*
10.5 Agreement of Lease between Vornado 330 West 34th Street
L.L.C. as Landlord and Registrant as Tenant, dated as of
March 8, 2000 (incorporated by reference to Exhibit 10.8
of Registration No. 333-96689)
10.6 Master Lease and Financing Agreement (with exhibits and
schedules) by and between Compaq Financial Services
Corporation and Registrant, dated as of August 28, 2000
21.1 Subsidiaries
23.1 Consent of KPMG LLP
------------------------
* Management contract or compensatory plan or arrangement
(d) Financial Statement Schedules.
Not applicable.
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
March 30, 2001.
[Download Table]
LIVEPERSON, INC.
By: /s/ ROBERT P. LOCASCIO
-----------------------------------------
Robert P. LoCascio
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 30, 2001.
[Enlarge/Download Table]
SIGNATURE TITLE(S)
--------- --------
/s/ ROBERT P. LOCASCIO Chief Executive Officer and Chairman of the
------------------------------------------- Board of Directors (principal executive
Robert P. LoCascio officer)
/s/ TIMOTHY E. BIXBY President, Chief Financial Officer, Secretary
------------------------------------------- and Director (principal financial and
Timothy E. Bixby accounting officer)
/s/ RICHARD L. FIELDS Director
-------------------------------------------
Richard L. Fields
/s/ WYCLIFFE K. GROUSBECK Director
-------------------------------------------
Wycliffe K. Grousbeck
/s/ KEVIN C. LAVAN Director
-------------------------------------------
Kevin C. Lavan
/s/ ROBERT W. MATSCHULLAT Director
-------------------------------------------
Robert W. Matschullat
/s/ EDWARD G. SIM Director
-------------------------------------------
Edward G. Sim
EXHIBIT INDEX
[Download Table]
NUMBER DESCRIPTION
------ -----------
2.1 Stock Purchase Agreement, dated as of October 12, 2000,
among Registrant, HumanClick Ltd. and the shareholders of
HumanClick Ltd. named in Schedule I thereto (incorporated by
reference to Exhibit 2 of the Registrant's Current Report on
Form 8-K, dated October 12, 2000 and filed October 19,
2000)
3.1 Fourth Amended and Restated Certificate of Incorporation
3.2 Second Amended and Restated Bylaws, as amended
4.1 Specimen Common Stock certificate (incorporated by reference
to Exhibit 4.1 of the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 333-96689)
("Registration No. 333-96689"))
4.2 Second Amended and Restated Registration Rights Agreement,
dated as of January 27, 2000, by and among Registrant, the
several persons and entities named on the signature pages
thereto as Investors, and Robert LoCascio (incorporated by
reference to Exhibit 4.2 of Registration No. 333-96689)
4.3 See Exhibits 3.1 and 3.2 for further provisions defining the
rights of holders of common stock of the Registrant
10.1 Employment Agreement between Registrant and Robert P.
LoCascio, dated as of January 1, 1999 (incorporated by
reference to Exhibit 10.1 of Registration No. 333-96689)*
10.2 Employment Agreement between Registrant and Timothy E.
Bixby, dated as of June 23, 1999 (incorporated by reference
to Exhibit 10.3 of Registration No. 333-96689)*
10.3 2000 Stock Incentive Plan*
10.4 Employee Stock Purchase Plan*
10.5 Agreement of Lease between Vornado 330 West 34th Street
L.L.C. as Landlord and Registrant as Tenant, dated as of
March 8, 2000 (incorporated by reference to Exhibit 10.8 of
Registration No. 333-96689)
10.6 Master Lease and Financing Agreement (with exhibits and
schedules) by and between Compaq Financial Services
Corporation and Registrant, dated as of August 28, 2000
21.1 Subsidiaries
23.1 Consent of KPMG LLP
------------------------
* Management contract or compensatory plan or arrangement
Dates Referenced Herein and Documents Incorporated by Reference
12 Subsequent Filings that Reference this Filing
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